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Finance the biggest obstacle for road contractors in Mongolia

Interview - April 9, 2014
Mr. Munkhbaatar, director of Mongolian company Public Road, speaks to United World about the government’s ambitious plan to pave 100% of Mongolian roads by 2020 (of which only 24% ore paved currently) and how securing financing is currently the biggest problem for local companies such as his in executing road and other projects and this why companies such as his seek foreign investment
What are the main obstacles that the sector is currently facing?

First of all it is financing. We all depend on the government budget, economic prosperity, and international mining companies. One of the markets the company can operate in is the railway sector. As a road company, we can get into these projects. We have recently established a railway association and started preparing our human resources. Also, companies like ours do the soil preparation. Thus, we need to examine this market. However, the financial problem could be an obstacle. Once the financing is decided, we need to prepare human resources and equipment. As for Mongolia, which is a small country, human capital is one of the major issues as well.

We would like to start this interview with a brief overview of the Mongolian road and infrastructure development sector. Currently, only 24% of the roads are paved, however the Government’s Plan aims to pave all roads by 2020. What do you think about this ambitious road master plan? Do you think that the Government will be able to achieve it?

The government project has three stages until 2020, to pave 100% or 13,000 kilometers of road. There is 50,000 km of road the government stated that could be used for transportation. As of this year, 23% of the roads are paved, which is quite close to the plan. By 2016, around 60% of the roads will have been paved, which will be 5000 km of road according to this plan. And by 2020, another 5000 km of road will be paved to reach 100% of the total roads. The government has a project to build 8000 km of road by 2020 plus the mining roads, international road “AAH32” which is total of 4333 km of road. So all of these road projects are our target projects.

So far, what have been the achievements of the company and what do you project for the upcoming years?

Because I have an extensive background in this sector, the introduction to the market was somewhat easy. The initial year was mostly preparation, and we took our first project in 2010 as a subcontractor of a national developer company on 19 km of road. In Mongolia, it is difficult to run business during election times so it was troublesome to run the business in 2012. I had an idea to form a team project consultant team but the company management didn't have much faith in it so I started it by myself. In 2013, we developed our own project management team and the Mongolian Development Bank financed two of our projects, which was a huge step for our company. For Mongolian practice and law, in order for a private company to get a public project, the company must be operating for at least 3 years. We were approved because the bank appreciated our project on management consultancy. We then received two contracts on this project and completed it successfully. Our history may be short but our future will be long. Additionally, we are the only company adapting this high level of project standards to adapt to the environment of Mongolia. Formerly a Russian standard, this was already outdated. For example, simply filling the road holes was a Russian standard at the time of the socialist budgetary policy. We began talking to the Ministry of Road and Construction to make road project management the standard in our sector. This is the document on project management standards that I worked on as a private company. It takes us one step closer towards excelling at road project management.

So far we have had the opportunity of interviewing companies and main representatives of the road sector. From their point of view the privatization of the roads will increase its attractiveness towards international investors and foreign partners. What is your opinion on that?

As for mining roads, it can be implemented. As for the public roads, I think receiving profitable returns may be difficult. There is a study on traffic roads to calculate the overall revenue and it was concluded that the investment wouldn’t be paid back. For the Chinggis land group, the financial investment can be returned, since it will be used for trade between China and Russia. This will be different for local roads. We are looking at taking part of this, however, the project is not certain at this moment.

Do you have a specific policy for your company?

There is a company called Come and Coach, which works as a human resource consultant to our company. This company worked as a consultant to MCS, Anod Bank, New Progress and has worked in human resources for 10 years. I have also mentioned before that I duplicated the project management standards from Europe and adapted it to Mongolia. I have hired a foreign expert for this 20 km project. Our foreign relations are excellent. We always attend human resource training programs. We have an exchange program with a German corporation partnership and we receive specialists from this association and get training on human resources. We also introduced a European human resource valuation standard called KPI. These are the focus of our plans and policies.

When we talk about foreign investment from Mongolia, I think companies have to receive money as well as knowhow, technology and human resource skills. I see that your company cooperates with the international community, in Germany, London; some of your staff are in Cuba now. Would you expand on this?

Human resources are our main priority. In 2007, when I started in this market, the main emphasis was on technology and machinery. Asian Development Bank research concluded that most of the world-class equipment such as Wagner Asia, Hera Equipment and Mon Truck have been introduced in the Mongolian mining sector and are all ready to provide technology. Thus, now companies need to supply their human resources by themselves. All the latest technology has been introduced to the market; we would like to be the first to be using that technology.

You have the longest experience in the sector, working with Japanese, Koreans and Europeans. What would be your biggest contribution to this company?

Well, I will mention that I also majored in economics. Between 1993 and 1997, the road sector of Mongolia was fully stopped. Thus, I couldn't get a job in road sector, and therefore I studied economics. Parliament member Amarjargal, whose school is where I studied economic as well as management theories, is the one who first introduced the European standard to Mongolia. Generally, the directors of road companies are road engineers. My advantage would be my background in economics as well as my experience and expertise on road projects. Thus in the coming 5 years, my knowledge would contribute the most to this company. I aim to have a professional CEO, preferably from Europe.

What do you think makes your company unique and separates it from others?

Our company is very different from others. We don't use the Russian standard and are pioneers in introducing developed and western standards. I have formed my team with people experienced in the international market. As per investment, we invest in western equipment, not Chinese. Three main principles for our company are firstly, to work environmentally safe. Additionally, one of the biggest issues for Mongolian roads is the quality. Thus, we give the second highest priority to quality. Another problem in road projects is that projects don’t finish within the time frame. This is our third principle, exemplified by the fact that all the projects we executed have finished before the deadline. In our operational history, we haven’t had any accidents. Of course, this is the thing we value the most, which differentiates us from other companies.

What would be your final messages our readers in the US and Europe?

As for investors from developed markets such as the US and Europe, my message would be quite unique. It would be strange for local companies. For example, what I have mentioned is not something new in the US market. However, I would like to say that, the Mongolian road sector has a promising future. In order to penetrate into this market, we pursue long term strategies compared to other companies.

In the future, thousands of km of road will be built. Thus, there is plenty of opportunity for Americans who want to invest here. Are you ready to welcome these investors?

We have a 5 year vision and I can see how things will change within this timeframe. The situation of Mongolia changes rapidly. For example, you can compare the situation of today with that of 2007. I can’t imagine today’s situation in 2007. In econometrics, you can project the future based on the past. But as for Mongolia, the actual numbers always exceed the projection. We invest 1% of our profit in safety measures, which means that we focus on our future performance by investing today’s profit. We have to take care of each other, as there are very few of us.