Mongolia: Regional Logistics Development Project

Regional Logistics Development Project (RRP MON 41192-01) Project Administration Manual Project Number: 41192-01 Proposed Loan: MON: Regional Logistics Development Project November 2010 Mongolia: Regional Logistics Development Project

Table of Contents I. PROJECT DESCRIPTION... 1 II. IMPLEMENTATION PLANS... 2 A. Project Readiness Activities... 2 B. Overall Project Implementation Plan... 3 C. Implementation Schedule... 4 III. PROJECT MANAGEMENT ARRANGEMENTS... 5 A. Project Implementation Organizations Roles and Responsibilities... 5 B. Key Persons Involved in Implementation... 6 C. Project Organization Structure... 7 IV. COSTS AND FINANCING... 8 A. Detailed Cost Estimates by Expenditure Category... 8 B. Allocation and Withdrawal of Loan and Grant Proceeds... 10 C. Detailed Cost Estimates by Financier a... 11 D. Detailed Cost Estimates by Year a... 12 E. Contract Awards and Disbursement S-curves... 13 F. Funds Flow Diagram... 13 V. FINANCIAL MANAGEMENT... 14 A. Financial Management Assessment... 14 B. Disbursement... 16 C. Accounting and Auditing... 17 VI. PROCUREMENT AND CONSULTING SERVICES... 17 A. Advance Contracting and Retroactive Financing... 17 B. Procurement of Civil Works, Goods and Consulting Services... 18 C. Procurement Plan... 19 D. Consultant s Terms of Reference... 22 VII. SAFEGUARDS... 23 A. Environment... 23 B. Land Acquisition and Resettlement... 24 C. Execution of Goods Contracts for Terminal Equipment and Systems... 24 VIII. GENDER AND SOCIAL DIMENSIONS... 25 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION... 25 A. Project Design and Monitoring Framework... 25 B. Monitoring... 27 C. Evaluation... 30 D. Reporting... 30 E. Disclosure of Documents... 31 X. ANTICORRUPTION POLICY... 33 XI. ACCOUNTABILITY MECHANISM... 34 XII. RECORD OF PAM CHANGES... 35

PROJECT ADMINISTRATION MANUAL (PURPOSE AND PROCESS) The Project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The Ministry of Road, Transportation, Construction and Urban Development (MRTCUD) is wholly responsible for the implementation of ADB financed Regional Logistics Development Project, as agreed jointly between the Beneficiary and ADB, and in accordance with Government and ADB s policies and procedures. ADB staff is responsible to support implementation including compliance by MRTCUD of its obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At Loan and Grant Negotiations, the Beneficiary and ADB agreed to the PAM and ensured consistency with the financing agreement. In the event of any discrepancy or contradiction between the PAM and the Financing Agreement, the provisions of the Financing Agreement shall prevail. After ADB Board approval of the project's report and recommendation of the President (RRP), changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.

Abbreviations ADB CAREC DFR EA EIA FS GDP HA IA IEE IFI IRR KM Kph M MM MNET MOF MRA MRTCUD MT NGO NPV O/D ODA PIA PKM PRC RF RFP RP Sq. Km TA TKM TOR UBTZ USD ZULC Asian Development Bank Central Asian Regional Economic Cooperation draft final report executing agency environmental impact assessment feasibility study gross domestic product hectare implementing agency initial environmental examination international financing institution internal rate of return kilometer kilometers per hour meter Millimeter Ministry of Nature, Environment and Tourism Ministry of Finance Mongolian Railway Authority Ministry of Road, Transportation, Construction and Urban Development metric tons non-government organization net present value origin-destination official development assistance project impact area passenger-kilometer People s Republic of China Russian Federation request for proposal resettlement plan square kilometer technical assistance ton-kilometer terms of reference Ulaanbaatar Tumur Zam U.S. dollar Zamyn Uud Logistics Center

I. PROJECT DESCRIPTION 1. Mongolia is a historical land bridge between north and south (from the People s Republic of China [PRC] to the Russian Federation (RF) on the way to Europe). The transport sector, which mainly consists of road transport and railways, is a key driver of economic development in Mongolia. The road network, including state and local roads, totals approximately 49,250 kilometers (km) connecting 21 major cities and towns and 160 smaller villages (soums and bags). The 1,810 km Mongolian railway system carries over 90% of freight. The main-line connecting the PRC rail system in the south with the Russian Trans-Siberian line in the north, was completed in 1955. It is the lifeline of the economy and most of the economic development in the country during the last 55 years has taken place along this corridor. The strategic location of Mongolia as a transit country between the PRC and the RF has contributed to the demand for transport. In recent years, high economic growth has led to increased transport demand. Although the volume of transportation has risen, the transport sector is unable to meet all of the increasing demand. This constrains Mongolia s ability to achieve its full economic growth potential. 2. Mongolia is also a landlocked country and such countries face greater transportation challenges. Located between two large neighbors, Mongolia has no direct access to seaports and has to depend upon the RF and the PRC for access to seaports. In recent years, trade flows have been reoriented from the RF so that most of the imports (over 80%) are now coming from the PRC through th.e border point in Zamyn Uud in the southeast of the country. The bulk of Mongolia s exports also transit through Zamyn Uud on their way to Tianjin port, the only PRC port available to Mongolia for purposes of international trade. As a consequence, the traffic handled at Zamyn Uud witnessed high growth rates in recent years. However, Zamyn Uud is now badly congested, 1 and this is affecting imports, exports, and transit traffic. Though a number of reasons contribute to these delays (non availability of rolling stock, change of gauge, delays at customs), the main reason is the grossly inadequate logistics at Zamyn Uud in particular and in Mongolia in general. 3. Recognizing the need for development of intermodal transport and a strong logistics network in the country to enhance Mongolia s global competitiveness, the Government has requested ADB financing for design and construction of a logistics center in Zamyn Uud with integrated Customs and Quarantine facilities to remove current congestion at the border. The Zamyn Uud Logistics Center (ZULC) will include a computerized terminal management system for efficient, safe, and secure intermodal container operations. 4. ADB strategy for Mongolia identifies the underdeveloped transport network and inefficient cross border transport as major transport sector issues. Its regional cooperation strategy and program update for CAREC identifies multimodal transport as a strategically important priority and developing multimodal facilities at Zamyn Uud as a key intervention for possible ADB assistance. The recent ADB sector assistance program evaluation (SAPE) also identifies logistics as a key area for future support. 2 5. Impact: International and regional trade is promoted in Mongolia. 6. Outcome: An efficient, competitive, and reliable multimodal transport system at Zamyn Uud. 1 Discussions with different stakeholders revealed that import cargoes could take anywhere between 10 to 60 days for clearance at Zamyn Uud. 2 ADB. 2008. Sector Assistance Program Evaluation of the Asian Development Bank Assistance for Roads and Railways in Mongolia. Manila.

2 7. Outputs: 1. A multimodal facility, complete with facilities for road to road, road to rail, and rail to rail transshipment is developed at Zamyn Uud. 2. Terminal equipment and management system are procured and installed to support efficient operations. 3. Institutional capacity of the Implementing Agency improved and project implementation management support provided. II. IMPLEMENTATION PLANS A. Project Readiness Activities 8. MRTCUD designated the Mongolian Railway Authority (MRA) as the Implementing Agency (IA). The IA will establish a Project Implementation Unit (PIU) on 10 November 2010, which will be supported by the staff of MRTCUD s Roads and Transport Policy Department; Finance, Investment and International Cooperation Department; and Internal Auditing, Monitoring and Evaluation Department on as-needed basis. 9. Draft safeguards document (Initial Environment Examination) has been completed. Approval of the Ministry of Nature, Environment and Tourism (MNET) has been obtained to commence construction of ZULC based on the Initial Environment Examination (IEE). Assistance proposed for project implementation will include recruitment of a procurement consultant to assist the IA in the preparation of bidding documents for all contract packages for goods and civil works as well as the request for proposal (RFP) for implementation consultants. Bid invitations are expected by early January 2011. Similarly the consultant selection process for project management, construction supervision, and MRA s institutional capacity improvement will commence from early January 2011 using advance contracting. Overall program readiness activities are shown in Table 1. Table 1: Project Readiness Activities Activities Aug or Prior Months Sep Oct Nov Dec 10 Feb. 11 May Who responsible Designation of Implementing Agency MRTCUD Loan Fact Finding Mission and MOU Signing ADB and Government Completion of the bidding documents for all contracts MRTCUD/MRA and TA Consultant Advance contracting actions: A. Project Management consultants Recruitment MRTCUD/MRA Commencement Completion

3 B. Civil Works and Goods bidding Invitation for bids for ICB Contract Award MRTCUD/MRA ADB Board approval ADB Loan signing ADB and Government Issuance of legal opinion Government Loan effectiveness Government ADB = Asian Development Bank, ICB = International Competitive Bidding, MOF = Ministry of Finance, MRTCUD = Ministry of Road, Transportation, Construction and Urban Development, PPTA = Project preparatory technical assistance. Source: MRTCUD and Asian Development Bank estimates. B. Overall Project Implementation Plan 10. Physical implementation will be completed by 31 December 2015 and loan account will close by 30 June 2016. Overall project implementation plan is shown in Figure 1. 11. The project duration is 5 years, and the overall implementation plan will be updated annually and submitted to ADB.

C. Implementation Schedule 4 Figure 1: Implementation Schedule Item 1 Project Procurement Schedule for Civil Works Packages Time (weeks) 207 2010 2011 2012 2013 2014 2015 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 1 st H 2 nd H 1 st H 2 nd H A. General Procurement Notice and Invitation for Bids 13 B. Receive and Evaluate Bids, ADB Approval 13 C. Award Bid, Sign Contract 5 D. Mobilization and Construction for Civil Works 176 2 Procurement Schedule for Goods Packages 233 A. General Procurement Notice and Invitation for Bids 13 B. Receive and Evaluate Bids, ADB Approval 13 C. Award Bid, Sign Contract 5 D. Mobilization, Delivery, Installation of Goods 202 3 A. B. Recruitment Schedule for Design, Implementation Supervision, and Capacity Improvement Consultant CSRN Announcement, Receipt of EOIs and Shorlisting Receipt and Evaluation of Technical Proposals 267 C. Public Opening of Financial Proposals and Computation of Final Evaluated Scores 3 D. Contract Negotiation and Award 4 E. Mobilization of Consultant and Delivery of Services 240 5 Civil Works Defects Liability Period 52 6 Goods Warranty Period and Trial Operations Source: PPTA Consultant 7 13 26 ADB - Asian Development Bank; CSRN - Consultant services recruitment notice; EOI - Expression of Interest; Qtr - Calendar quarter.

5 III. PROJECT MANAGEMENT ARRANGEMENTS A. Project Implementation Organizations Roles and Responsibilities Project Implementation Organizations Ministry of Road, Transportation, Construction and Urban Development (MRTCUD) -the Executing Agency Management Roles and Responsibilities timely provision of agreed counterpart funds for project activities; monitoring and evaluation of project activities and outputs, including periodic review, preparation of review reports reflecting issues and time-bound actions taken (or to be taken); involving beneficiaries and civil society representatives in all stages of project design and implementation; public disclosure of project outputs; quality assurance of works, and services of consultants and counterpart staff; establishing strong financial management system and submitting timely withdrawal applications to ADB, conducting timely financial audits as per agreed timeframe and taking recommended actions; complying with all loan covenants; preparing regular periodic progress reports, and project completion reports and their timely submission to ADB; and ensuring project s sustainability during post implementation stage and reporting to ADB on the assessed development impacts. the existing PSC for PPTA implementation will continue under the Project. The PSC will meet Project Steering Committee quarterly and be responsible for (i) approving the annual Project budget and activity plan, and (ii) reviewing and advising on implementation progress Ministry of Finance (MOF) signing the Financing Agreement for the Project; monitoring of the project implementation and providing respective coordination and facilitation; timely provision of agreed counterpart funds for project activities; allocating and releasing counterpart funds; endorsing to ADB the authorized staff with approved signatures for WAs processing; and processing and submitting to ADB any request, when required, for reallocating the loan proceeds. recruiting project management consultants (PMC); finalizing surveys, design, bidding documents, and Mongolian Railway Authority MRA (Implementing Agency and PIU) contract awards; overall construction supervision with the Project Management Consultants, quantity and quality validation of installation of civil works, equipment and procured machinery; involving beneficiaries and civil society representatives in all stages of project design and implementation; public disclosure of project outputs; quality assurance of works, and services of consultants and counterpart staff; complying with all loan covenants; preparing regular periodic progress reports,

6 monitoring and evaluation reports, and project completion report and their timely submission to ADB; and ensuring projects' sustainability during post implementation stage and reporting to ADB on the assessed development impacts. MRTCUD s Roads and Transport Policy primarily responsible for supporting MRA, PIU in the Department; Finance, Investment and International implementation of the project; Cooperation Department; and Internal Auditing, practical (on-the-job) training of MRA PIU staff on Monitoring and Evaluation Department (organization ADB documentation requirements, as needed. units supporting the Implementing Agency) Asian Development Bank (ADB) assist the MRTCUD and its project implementing agency in providing timely guidance at each stage of the project for smooth implementation in accordance with the agreed implementation arrangements; review all the documents that require ADB approval; conduct regular loan review missions, a mid-term review, and project completion mission ensure compliance with all loan covenants including safeguards; timely process withdrawal applications and release eligible funds; ensure the compliance with financial audit recommendations; regularly update the project performance review reports with the assistance of MRTCUD and MRA; regularly post on ADB web the updated project information documents for public disclosure, and also the safeguards documents as per disclosure provisions of the ADB safeguards policy statement B. Key Persons Involved in Implementation Executing Agency Ministry of Road, Transportation, Construction and Urban Development (MRTCUD - the executing agency) Asian Development Bank Division Director Mission Leader T. Purevdorj Vice Minister Telephone: +976-11-326369 Office Address: MRTCUD Building, Barilgachdiin Talbai 3 Chingeltei District 15170, Ulaanbaatar, Mongolia Tyrrell Duncan Director, Transport Division East Asia Department (EATC) Telephone No: +63-2-632-4110 Email address: tduncan@adb.org 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Manmohan Parkash Advisor, Knowledge Management and Capacity Development East Asia Department (EARD) Telephone: +63-2-632 5475 Email address: mparkash@adb.org 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines

7 C. Project Organization Structure 12. The Project Steering Committee for the PPTA 3 will be retained for Project implementation. It will be established based on the new Guidelines for the Implementation and Administration of Loans to be issued by the Ministry of Finance. The PSC will meet quarterly and be responsible for (i) approving the annual Project budget and activity plan, and (ii) reviewing and advising on implementation issues. 13. The MRTCUD will be the executing agency (EA) and its Mongolian Railway Authority (MRA), which has the mandate for all intermodal transport and logistics projects of MRTCUD, will be the implementing agency (IA). Day-to-day implementation of the Project will be performed by a Project Implementation Unit (PIU) to be established under MRA. An international firm will be engaged as project management consultants (PMC) with responsibility for detailed design and implementation supervision. Contract modalities will include civil works and procurement and installation of terminal equipment and systems, hence the PMC s role will be to manage contracts with IA and PIU and give hands-on training in project management and oversight, financial management, ADB disbursement procedures including use of imprest accounts, operation and maintenance, asset management, and reporting. Since this will be MRA s first IFI-funded project, the direct involvement of MRTCUD s related departments in project execution will result in effective capacity improvement for implementing externally-funded projects. Figure 2: Project Organization Chart MOF Steering Committee ADB MRTCUD (EA) MRA (IA) Design and Implementation Supervision Consultant PIU Contractor(s) ADB - Asian Development Bank MOF - Ministry of Finance MRTCUD - Ministry of Road, Transportation, Construction and Urban Development MRA - Mongolian Railway Authority PIU - Project Implementation Unit 3 ADB. 2008. Technical Assistance to Mongolia for Preparing the Regional Logistics Development Project. Manila.

8 IV. COSTS AND FINANCING A. Detailed Cost Estimates by Expenditure Category 14. The project is estimated to cost $71.6 million, including taxes and duties, contingencies, and interest and other charges during implementation. Table 2 summarizes the total investment plan. The cost estimates are based on quantities derived from preliminary engineering designs and unit rates reflecting market prices for goods and materials. Table 2: Project Investment Plan ($ million) Item Amounts A. Base Cost a 1. Civil works, materials, and equipment b 58.21 2. Project management, consulting services, and environmental mitigation 3.11 Subtotal (A) 61.32 B. Contingencies c 8.95 C. Financing Charges During Implementation d 1.37 Total (A+B+C) 71.64 a In July 2010 prices. b Including taxes and duties of $1.95 million. c Physical contingencies are estimated at 6% and price contingencies computed at 10% for local currency costs for 2011 2015 and 3% for foreign exchange components for 2011 2015. d Interest during implementation for the Asian Development Bank loan is based on Asian Development Fund rate of 1% during the grace period. Source: Asian Development Bank estimates. 15. The Government has requested financing of up to an equivalent of $40 million from ADB s Asian Development Fund (ADF) loan and $5 million from ADF grant for a total of $45 million from ADB s Special Funds resources to help finance the Project. 4 The ADF loan will have a term of 32 years, including a grace period of 8 years, with an interest charge of 1% per annum during the grace period and 1.5% per annum thereafter and such other terms and conditions set forth in the draft loan and grant agreements. The Beneficiary will be Mongolia. A summary of the financing plan is in Table 3. Table 3: Financing Plan ($ million) Source Total % Asian Development Bank (Loan) 40.00 55.8 Asian Development Bank (Grant) 5.00 7.0 Government 26.64 37.2 Total 71.64 100.0 Source: Asian Development Bank estimates. 4 Including transportation and insurance cost.

Detailed Cost Estimates by Expenditure Category a $'000 MNT Million Foreign Local Total Foreign Local Total % of Total Item Exchange Currency Cost Exchange Currency Cost Base Cost A. Base Costs 1. Track materials 5,544.8 616.1 6,160.9 8,217.4 913.0 9,130.5 11.3 2. Trackwork 1,356.0 904.0 2,260.0 2,009.6 1,339.7 3,349.3 4.1 3. Pavement 8,174.5 2,043.6 10,218.1 12,114.6 3,028.6 15,143.2 18.7 4. Lighting 446.9 111.7 558.6 662.3 165.6 827.8 1.0 5. Safety and security 2,913.0 323.7 3,236.7 4,317.1 479.7 4,796.8 5.9 6. Buildings 2,266.8 1,511.2 3,778.0 3,359.4 2,239.6 5,599.0 6.9 7. Facilities 210.8 134.8 345.6 312.4 199.7 512.2 0.6 8. Sitework, cleaning, and earthworks 465.54 1,862.2 2,327.7 689.9 2,759.7 3,449.7 4.3 9. Site utilities (electric, water, field office communication lines) 1,148.0 287.0 1,435.0 1,701.3 425.3 2,126.7 2.6 10. Access road and bridge 5,025.2 2,153.7 7,178.9 7,447.4 3,191.7 10,639.1 13.1 11. Terminal equipment 16,596.7 513.3 17,110.0 24,596.3 760.7 25,357.0 31.3 Subtotal (A) 44,148.3 10,461.2 54,609.5 65,427.7 15,503.5 80,931.3 100.0 B. Project Management, Consulting Services, and Environmental Mitigation 1,676.7 1,435.7 3,112.4 2,485.0 2,127.6 4,612.6 5.7 C. Licenses, Taxes, and Duties 0.0 3,595.3 3,595.3 0.0 5,328.2 5,328.2 6.6 D. Contingencies 1. Physical b 2,646.5 649.1 3,295.6 3,922.1 962.0 4,884.1 6.0 2. Price c 3,113.9 2,546.0 5,659.9 4,614.8 3,773.2 8,388.0 10.3 Subtotal (D) 5,760.4 3,195.1 8,955.5 8,537.0 4,735.2 13,272.1 16.4 E. Financing Charges during Implementation d Interest during implementation 1,366.4 0.0 1,366.4 2,025.1 0.0 2,025.1 2.5 Subtotal (E) 1,366.4 0.0 1,366.4 2,025.1 0.0 2,025.1 2.5 Total Project Cost (A+B+C+D+E) 52,951.8 18,687.3 71,639.2 78,474.7 27,694.5 106,169.2 131.2 a Base costs are in July 2010 market prices and exclude taxes, duties, and license fees. b c d Physical contingency is estimated at 6% of subcomponents A.1 A.11. Price contingency for local currency costs based on 10% for 2011 2015. For foreign exchange components based on 3% for 2011 2014. Interest during implementation for the Asian Development Bank loan is based on Asian Development Fund rate of 1% during the grace period. Source: Asian Development Bank estimates. 9

10 B. Allocation and Withdrawal of Loan and Grant Proceeds 16. Table 4 shows allocation and withdrawal of funds under all the categories of Project scope. Project management and consulting services, environmental mitigation, and part of civil works will be financed out of the ADF Grant of $5.0 million. Table 4: Allocation and Withdrawal of Loan and Grant Proceeds ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS (Regional Logistics Development Project) CATEGORY Number Item Total Amount Allocated for ADB Financing (SDR) Category 1 Works 33,544,700 2 Equipment 6,110,000 ADB FINANCING Percentage and Basis for Withdrawal from the Loan Account 100 percent of total expenditure claimed a 100 percent of total expenditure claimed a 3 Unallocated 345,300 a Total 40,000,000 Excluding taxes and duties. ALLOCATION AND WITHDRAWAL OF GRANT PROCEEDS (Regional Logistics Development Project) CATEGORY Number Item Total Amount Allocated for ADB Financing Category a 1 Works 2 Project management, consulting services, and environmental mitigation Total Excluding taxes and duties. 1,887,600 3,112,400 5,000,000 ADB FINANCING Percentage and Basis for Withdrawal from the Grant Account 100 percent of total expenditure claimed a 100 percent of total expenditure claimed a

C. Detailed Cost Estimates by Financier a ($ 000) ADB Loan ADB Grant Government Total Item % of % of Cost % of Cost % of Total Description $ $ $ $ Cost Category Category Project Cost A. Base Costs 1. Track materials 6,160.9 100.0 0.0 0.0 0.0 0.0 6,160.9 8.6 2. Trackwork 2,260.0 100.0 0.0 0.0 0.0 0.0 2,260.0 3.2 3. Pavement 8,666.4 84.8 0.0 0.0 1,551.7 15.2 10,218.1 14.3 4. Lighting 558.6 100.0 0.0 0.0 0.0 0.0 558.6 0.8 5. Safety and security 3,236.7 100.0 0.0 0.0 0.0 0.0 3,236.7 4.5 6. Buildings 3,778.0 100.0 0.0 0.0 0.0 0.0 3,778.0 5.3 7. Facilities 345.6 100.0 0.0 0.0 0.0 0.0 345.6 0.5 8. Sitework, cleaning, and earthworks 0.0 0.0 1812.3 77.9 515.4 22.1 2,327.7 3.2 9. Site utilities (electric, water, field office communication lines) 1,359.8 94.8 75.2 5.2 0.0 0.0 1,435.0 2.0 10. Access road and bridges 7,178.9 100.0 0.0 0.0 0.0 0.0 7,178.9 10.0 11. Terminal equipment 6,110.0 35.7 0.0 0.0 11,000.0 64.3 17,110.0 23.9 Subtotal (A) 39,654.9 71.9 1,887.5 4.4 13,067.1 23.7 54,609.5 76.2 B. Project Management, Consulting Services, and Environmental Mitigation 0.0 0.0 3,112.4 100.0 0.0 0.0 3,112.4 4.3 C. Licenses, Taxes, and Duties 0.0 0.0 0.0 0.0 3,595.3 100.0 3,595.3 5.0 D. Contingencies 1. Physical b 345.3 10.5 0.0 0.0 2,950.3 89.5 3,295.6 4.6 2. Price c 0.0 0.0 0.0 0.0 5,659.9 100.0 5,659.9 7.9 Subtotal (D) 345.3 3.9 0.0 0.0 8,610.2 96.1 8,955.5 12.5 E. Financing Charges during Implementation d 0.0 Interest during implementation 0.0 1,366.4 100.0 1,366.4 1.9 Subtotal (E) 0.0 0.0 0.0 0.0 1,366.4 100.0 1,366.4 1.9 Total Project Cost (A+B+C+D+E) 40,000.0 5,000.0 26,639.1 71,639.1 % Total Project Costs 55.8 7.0 37.2 100.0 a Base costs are in July 2010 market prices and exclude taxes, duties, license fees. All cost categories are financed 100% in parallel by Asian Development Bank (ADB) loan, grant b c d and/or government. Physical contingency is estimated at 6% of subcomponents A.1 A.11. Price contingency for local currency costs based on 10% for 2011 2015. For foreign exchange components based on 3% for 2011 2014. Interest during implementation for the ADB loan is based on Asian Development Fund rate of 1% during the grace period. Source: Asian Development Bank estimates. 11

D. Detailed Cost Estimates by Year a ($ 000) Total Item Cost A. Base Costs 2011 2012 2013 2014 2015 1. Track materials 6,160.9 0.0 3,080.5 2,464.4 616.1 0.0 2. Trackwork 2,260.0 226.0 1,130.0 904.0 0.0 0.0 3. Pavement 10,218.1 1,021.8 3,065.4 5,109.0 1,021.8 0.0 4. Lighting 558.6 111.7 167.6 167.6 111.7 0.0 5. Safety and security 3,236.7 647.3 971.0 971.0 647.3 0.0 6. Buildings 3,778.0 755.6 1,133.4 1,133.4 755.6 0.0 7. Facilities 345.6 69.1 103.7 103.7 69.1 0.0 8. Sitework, cleaning, and earthworks 2,327.7 698.3 1,163.9 465.5 0.0 0.0 9. Site utilities (electric, water, field office communication lines) 1,435.0 430.5 717.5 143.5 143.5 0.0 10. Access road and bridge 7,178.9 2,153.7 3,589.5 1,435.8 0.0 0.0 11. Terminal equipment 17,110.0 0.0 12,832.5 3,422.0 855.5 0.0 Subtotal (A) 54,609.5 6,114.1 27,954.8 16,319.9 4,220.7 25.8 B. Project Management, Consulting Services, and Environmental Mitigation 3,112.4 622.5 648.2 648.2 648.2 545.2 C. Licenses, Taxes, and Duties 3,595.3 405.5 1,831.6 1,072.8 283.7 1.7 D. Contingencies 1. Physical b 3,295.6 371.7 1,679.0 983.4 260.0 1.5 2. Price c 5,659.9 272.2 2,459.5 2,160.8 761.8 5.6 Subtotal (D) 8,955.5 643.9 4,138.4 3,144.2 1,021.9 7.2 E. Financing Charges during Implementation d Interest during implementation 1,366.4 23.6 145.4 419.4 378.0 400.0 Subtotal (E) 1,366.4 23.6 145.4 419.4 378.0 400.0 Total Project Cost (A+B+C+D+E) 71,639.2 7,809.5 34,718.6 21,604.5 6,552.5 954.0 a Base costs are in July 2010 market prices and exclude taxes, duties, license fees. All cost categories are financed 100% in parallel by Asian Development Bank (ADB) loan, grant and/or government. b c d Physical contingency is estimated at 6% of subcomponents A.1 A.11. Price contingency for local currency costs based on 10% for 2011 2015. For foreign exchange components based on 3% for 2011 2015. Interest during implementation for the ADB loan is based on Asian Development Fund rate of 1% during the grace period. Source: Asian Development Bank estimates. 12

13 E. Contract Awards and Disbursement S-curves Figure 3: ZULC Contract Awards and Disbursement S-Curves $ Million 50.0 40.0 30.0 20.0 10.0 0.0 2.7 2.7 0.0 0.0 0.2 1.1 4.0 7.4 2.4 17.4 4.4 26.2 29.8 20.0 24.0 23.7 8.2 14.1 28.2 19.9 33.0 35.0 36.0 38.0 33.4 40.0 35.8 36.5 38.4 38.5 39.0 39.7 40.0 42.0 45.0 41.0 42.0 43.0 45.0 45.0 45.0 45.0 Time Elapse Project Cumulative Cumulative Disbursements ADB Cumulative Contract Awards F. Funds Flow Diagram 17. Figure 4 shows how the funds will flow from ADB and the Government to implement the Project. Funds coming from MOF to MRTCUD will relate to counterpart funds only. ADB will disburse to the imprest account or to the contractors directly. Imprest account will be set up at a commercial bank acceptable to ADB. Figure 4: Funds Flow Diagram Borrower (Ministry of Finance of Mongolia) Counterpart funds Payment to Imprest Account Payment to Imprest Account ADB Direct Payment Executing Agency (Ministry of Roads, Transport, Construction, and Urban Development) Counterpart Funds - Contractors - Consultants Flow of funds Lending Loan repayment

14 A. Financial Management Assessment V. FINANCIAL MANAGEMENT 18. Key findings of the financial management assessment undertaken for the MRTCUD during project preparation are as follows: Particulars A. Funds Flow Arrangements Table 5: Summary of the Financial Management Assessment Conclusions To date, various international financing projects have been implemented by MRTCUD, with most projects financed by ADB, the World Bank, European Bank for Reconstruction and Development (EBRD), and bilateral assistance organizations from Germany, Japan, and United States. MRTCUD has enough capability to smoothly work under the proposed project with the training for MRA s PIU staff designed through ADB TAs in procurement and preparation of terminal management contract bidding package and by the project implementation consultant during project implementation. B. Staffing MRTCUD s Finance, Investment and International Cooperation Department, which oversees funds flow, is staffed with experienced financial specialists who are experts in managing the internal finance. All employees are full time with formal job descriptions for each position. Experienced staff in this Department will provide the necessary support to the PIU. C. Accounting Policies and Procedures D. Internal and External Audits E. Reporting and Monitoring F. Information Systems Source: PPTA consultants. The chart of accounts based on the state standard format has been in use by the Financial Department for many years. Segregation of duties is specified in the comments on the questionnaire including budgeting system, payments, policies and procedures, cash and bank, safeguard over assets, other offices and implementing entities. A separate financial management manual is planned to be established for the Project to be used by the PIU in accordance with ADB requirements. An Internal Audit function is available through the Internal Auditing, Monitoring and Evaluation Department of MRTCUD. For the external Audit, the independent government auditor is the Mongolian National Audit Office. Annual audited report by this agency for 2008 has been received and reviewed by the PPTA consultant. Financial statements are currently prepared for MRTCUD on monthly, quarterly and annual basis. Existing reporting system can be linked with the financial information of physical project progress but with the help of financial management specialist of the consultants. Financial management system is computerized and it produces the necessary financial reports of the ongoing development works. The staff is adequately trained to maintain the system and the management organization and processing system safeguard the confidentiality, integrity, and availability of data. 19. Actions required to be taken by the MRTCUD are as follows: (i) MRA, PIU s financial staff must undergo training on ADB financial management procedures and ADB disbursement procedures to fully understand ADB s reporting requirements and strengthen their internal audit capacity.

15 (ii) A separate financial management manual for the Project should be established in accordance with the Government and ADB requirements before loan effectivity; and MRA should maintain separate accounts by funding source for the Project and have such accounts audited annually, in accordance with appropriate auditing standards consistently applied by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB. 20. Risk Analysis: During the implementation phase, the MRTCUD and MRA might face some risks that can generally be divided in two main categories: (i) country level; and (ii) organization/project level. Delay in the release of counterpart funds can be attributed as a country specific risk for the Project. Further, all the contracts with foreign suppliers/consultants financed out of loan and grant funds are subject to approval by the MRTCUD, MOF, and other cognizant agencies, which takes considerable time and eventually it could affect the project implementation. These, together with project-specific risks and the activities to mitigate them, are summarized as follows. Financial management risks shall need to be re-assessed and updated throughout the life of the investment program. Risk mitigation measures shall also be updated accordingly. Table 6: Risk Assessment and Mitigation Measures Risk Risk Assessment* Risk-Mitigation Measures Inherent Risk 1. Country-specific Risks M MOF and MRTCUD shall ensure the timely release of counterpart funds, as per loan covenants 2. Entity-specific Risks M MRA is new to ADB procurement guidelines and disbursement procedures. Involvement of MRTCUD staff and international procurement specialist at the initial stage of project implementation until all contract awards and consultant s recruitment, and on-the-job training on ADB procedures shall be carried out. ADB has committed to provide necessary support and training to staff of MRA. Overall Inherent Risk M Control Risk 1. Implementing Entity N The Steering Committee will provide overall guidance in project implementation. Organizational capacity of MRTCUD to oversee the implementation is satisfactory. 2. Funds Flow S Government has provided assurance on timely availability of counterpart funds starting 2012. For 2011 however, budgetary exercise has been completed and Government requested ADB assistance to finance startup activities, and the PIU. 3. Staffing M Implementation consultant shall assist the MRTCUD to design and implement the training program for PIU staff of MRA especially for ADB financial reporting requirements including disbursement procedures and their integration into overall national financial reporting requirements. 4. Accounting Policies and Procedures N Accounting Policy and Procedures Manual for PIU shall be drafted taking into account the national accounting standards and the requirements of ADB.

16 Risk Risk Assessment* Risk-Mitigation Measures 5. Internal Audit N MRTCUD s Internal Auditing, Monitoring and Evaluation Department will provide internal control services. The implementation consultants will also review and assess the adequacy of this arrangement. 6. External Audit M Annual audit of the project accounts shall be done in accordance with the International Standards of Auditing by an external auditor acceptable to ADB. Audited project accounts are required to be submitted to ADB within 6 months after the end of calendar year. 7. Reporting and Monitoring M MRTCUD, MRA through the PIU and implementation consultants shall regularly report in accordance with ADB requirements on adequacy of control mechanisms. 8. Information Systems S Appropriate computerized information systems shall be installed at MRA, PIU to strengthen the efficiency of existing information system and reporting. Overall Control Risk M * H High, S Substantial, M Moderate, N Negligible or Low. Source: PPTA consultants. B. Disbursement 21. The loan and grant proceeds will be disbursed in accordance with ADB s Loan Disbursement Handbook (2007, as amended from time to time) 5 and detailed arrangements agreed upon by the Government and ADB. 22. Pursuant to ADB's Safeguard Policy Statement (2009) (SPS), 6 ADB funds may not be applied to the activities described on the ADB Prohibited Investment Activities List set forth at Appendix 5 of the SPS. All financial institutions will ensure that their investments are in compliance with applicable national laws and regulations and will apply the prohibited investment activities list to subprojects financed by ADB. 23. Direct payment procedures will generally be used for all goods and civil works contracts, which are designed as large, and also for consulting services since there are very few expenditures envisaged other than civil works and goods contracts and consulting services, as shown in detailed cost estimates. MOF will establish two imprest accounts, 7 one for the loan and one for the grant at a commercial bank acceptable to ADB. The maximum amount to be deposited in the imprest account will not exceed the estimated expenditures to be financed from the imprest account or 10% of the respective loan and grant amount, whichever is lower. The request for initial advance to the imprest account should be accompanied by an Estimate of Expenditure Sheet setting out the estimated expenditures for the first six (6) months of project implementation, and submission of evidence satisfactory to ADB that the imprest account has been duly opened. For every liquidation and replenishment request of the imprest account, the Government will furnish to the ADB (a) Statement of Account (Bank Statement) where the imprest account is maintained, and (b) the Imprest Account Reconciliation Statement (IARS) reconciling the above mentioned bank statement against the EA s records. 24. ADB s statement-of-expenditure (SOE) procedure will be used for liquidation and 5 Available at: http://www.adb.org/documents/handbooks/loan_disbursement/loan-disbursement-final.pdf 6 Available at: http://www.adb.org/documents/policies/safeguards/safeguard-policy-statement-june2009.pdf 7 Bank charges for imprest accounts will be financed from ADB loan and grant.

17 replenishment of the imprest accounts, and for reimbursement of eligible expenditures not exceeding $100,000 per individual transaction. The payments in excess of the SOE ceiling will be reimbursed, liquidated, or replenished based on full supporting documentation. SOE records should be maintained and made readily available for review by ADB mission or upon ADB s request. Before the submission of the first withdrawal application, the Government should submit to ADB sufficient evidence of the authority of the person (s) who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is $100,000, unless otherwise approved by ADB. The MRTCUD will consolidate claims to meet this limit for reimbursement and imprest account claims. Withdrawal applications and supporting documents will demonstrate, among other things that the goods, and/or services were produced in or from ADB members, and are eligible for ADB financing. 25. MRTCUD will be responsible for (i) preparing disbursement projections, (ii) requesting budgetary allocations from MOF for counterpart funds (on behalf of MRA for the Project), (iii) collecting supporting documents, and (iv) preparing and sending withdrawal applications to ADB. 26. All disbursements under government financing will be carried out in accordance with regulations of Mongolia relevant to counterpart financing of the projects financed by the Multilateral Financing Organizations. The MRA shall open and maintain a separate account for government co-financing funds. C. Accounting and Auditing 27. The MRTCUD and MRA will (i) maintain separate accounts and records by funding source (loan and grant) following accounting principles prescribed by the Government of Mongolia Accounting Law. The Law requires financial statements to be prepared following internationally recognized accounting standards; (ii) have such accounts audited annually, in accordance with appropriate auditing standards consistently applied by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB; (iii) furnish to ADB as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited project accounts and the report of the auditors relating thereto (including the auditors separate opinions on the use of the imprest accounts and statement of expenditures which will be submitted together with a signed Management Letter), and (iv) furnish to ADB such other information concerning such accounts and the audit thereof as ADB shall from time to time reasonably request. The independent auditors will be engaged and financed under the Project. 28. The MOF will cause the detailed consolidated project accounts to be audited annually in accordance with International Standards on Auditing by an auditor acceptable to ADB. The Government and MRTCUD have been made aware of ADB s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB s financing is used in accordance with ADB s policies and procedures. VI. PROCUREMENT AND CONSULTING SERVICES A. Advance Contracting and Retroactive Financing 29. The Government of Mongolia requested for approval of advance procurement action. All

18 advance contracting will be undertaken in conformity with ADB s Procurement Guidelines (2010, as amended from time to time) 8 and ADB s Guidelines on the Use of Consultants (2010, as amended from time to time) 9. The issuance of invitations to bid under advance contracting will be subject to ADB approval. 30. Two contract packages are currently proposed under advance contracting Package 1 for civil works; and Package 2 for design and implementation supervision consulting services. Advance contracting will include (i) preparation of tender documents; (ii) evaluation of bids; and (iii) recruitment of consultants. 31. The Government was informed that retroactive financing should (i) specifically be discussed and agreed between ADB and the Beneficiary, (ii) that the amount to be retroactively financed does not exceed 20% of the loan and grant amount, and (iii) the expenditures must have been incurred before effectiveness but no earlier than 12 months before signing of the Financing Agreement. The Government of Mongolia has been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project. B. Procurement of Civil Works, Goods and Consulting Services 32. All procurement of civil works and goods will be undertaken in accordance with ADB s Procurement Guidelines (2010, as amended from time to time). International Competitive Bidding (ICB) will be used for civil works and goods contracts estimated to cost more than $1 million and $500,000, respectively. National Competitive Bidding (NCB) will be used for civil works and goods contracts estimated to cost below ICB thresholds but more than $100,000. All ICB contracts are subject to prior review. Prior review and approval of ADB of the procurement documents (bidding and contract) is required. For NCB, prior review for first English language version of bidding documents which will be used as a model for subsequent procurement. 33. All consulting services will be recruited according to ADB's Guidelines on the Use of Consultants (2010, as amended from time to time). A total of 172 person months of consulting services (60 international, 112 national) grouped into one package will be funded under the Project, to support the EA in (i) Preparation of detailed design and implementation supervision; (ii) training of PIU staff; (iii) terminal operations management; (iv) environmental monitoring; (v) procurement management; and (vi) project implementation and institutional capacity improvement. Consultants will be engaged using QCBS, with the standard ratio of 80:20. 34. An 18-month procurement plan indicating thresholds and review procedures, and civil works, goods and consulting service contract packages, is in Section C below. 8 Available at: http://www.adb.org/documents/guidelines/procurement/guidelines-procurement.pdf 9 Available at: http://www.adb.org/documents/guidelines/consulting/guidelines-consultants.pdf

19 C. Procurement Plan Table 7: Procurement Plan and Tentative Contract Packages Project Information Country Mongolia Name of Beneficiary Mongolia Project Name Regional Logistics Development Project Loan Reference TBD Date of Effectiveness TBD Project Cost Amount $71.6 million Of which ADB-Financed Amount $45 million Executing Agency Ministry of Road, Transportation, Construction and Urban Development (MRTCUD) Approval Date of Original Procurement Plan October 2010 Approval of Most Recent Procurement Plan TBD Publication for Local Advertisement TBD Period Covered by this Plan 4 October 2010 31 March 2012 TBD = to be determined. Procurement Thresholds for Civil Works, Goods and Related Services, Supply and Install Method Threshold International Competitive Bidding (Civil Works) > $1,000,000 International Competitive Bidding (Goods) > $500,000 National Competitive Bidding (Civil Works) > $100,000 National Competitive Bidding (Goods) > $100,000 Shopping for Works and Goods $100,000 or less List of Contract Packages in Excess of $100,000 Goods and Consulting Services Ref Contract Description Estimated Prior Procurement Date of Costs Review ($ million) a Methods Advertisement Y/N 1. Civil works and associated 35.4 goods (4 lots) ICB Jan 2011 Y 2. Terminal Equipment and 6.1 Systems (2 lots) ICB Jan 2013 Y 3. Services 3.1 (2 lots) QCBS b Jan 2011 Y ADB = Asian Development Bank, ICB = international competitive bidding, N = no, NCB = national competitive bidding, QCBS = quality- and cost-based selection, Y = yes. a Cost estimates do not include taxes and duties, and physical contingencies. b A 80:20 weighting will be applied. Sources: MRTCUD and ADB estimates.

20 35. National Competitive Bidding. The procedures to be followed for national competitive bidding shall be those set forth in the Public Procurement Law of Mongolia of 1 December 2005, effective 1 February 2006, as amended on 6 February 2007 and 16 July 2009 (hereinafter referred to as PPLM), with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of ADB's Procurement Guidelines (April 2010, as amended from time to time). (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) The Standard Bidding Documents of Mongolia for Goods and Works that have been approved by ADB as acceptable for ADB-financed projects, together with ADB's clarifications and modifications thereto, shall be used. Government-owned enterprises in Mongolia shall be eligible for projects only if they can establish that they: (i) are legally and financially autonomous; (ii) operate under the principles of commercial law; and (iii) are not dependent agencies of the Executing Agency and/or the Implementing Agency. If a bid security is required, the bid security shall be in any of the following forms at the bidder's option: (i) a bank guarantee; or (ii) a cashier's or certified check. Bidders must be nationals of member countries of ADB, and offered Goods and Works must be produced in and supplied from member countries of ADB. Bidders or potential bidders shall not be required to register with the taxation and other registration authorities of the government as a condition or requirement of bidding or award, leaving these requirements for after award and before signing of contract. Foreign bidders from eligible countries of ADB shall be allowed to participate in bidding under the same conditions as local bidders and without any domestic preference. Prequalification shall not be required, except in the case of large or complex works, and with prior written concurrence of ADB. Qualification criteria shall be clearly specified in the bidding documents, and all criteria so specified shall be used to determine whether a bidder is qualified. The evaluation of a bidder's qualifications shall only take into account the bidder's capacity and resources to perform the contract, in particular its experience and past performance on similar contracts, capabilities with respect to personnel, equipment and construction or manufacturing facilities, and financial position. The evaluation of the bidder's qualifications shall be conducted separately from the technical and commercial evaluation of the bid. Evaluation and qualification criteria, and submission requirements, to be used in each bidding activity shall be clearly specified in the bidding documents. The evaluation of bids shall be done in strict adherence to the criteria specified in the bidding documents. The invitation to bid and the bidding documents shall be prepared in the Mongolian language. If another language will be used, then such other language shall be English. Bidders shall be requested to extend the validity of their bids only under exceptional circumstances and the Executing or Implementing Agency, as the case may be, shall communicate such request for extension to all bidders before the date of expiry of their bids. When the procurement is subject to ADB's prior review, the Executing or Implementing Agency, as the case may be, shall obtain in a timely manner the prior written concurrence of ADB for the extension of the bid validity period. All bids shall not be rejected or new bids invited without ADB's prior written concurrence. No bid shall be rejected merely on the basis of a comparison with