China Eximbank provides $99.9 million preferential buyer’s credit for Ulaanbaatar Housing and Infrastructure Project

Project narrative

On November 28, 2005, the Chinese Government and the Government of Mongolia signed a general loan agreement regarding utilization of a $300 million preferential export credit. Then, on June 19, 2008, the parties signed a Memorandum of Understanding to amend the general loan agreement. On June 13, 2011, pursuant to the terms and conditions outlined in the amended general loan agreement, China Eximbank signed a $99,908,163.60 preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK PBC NO. (2011)23 TOTAL NO. (174)] with the Government of Mongolia’s Ministry of Finance for the Ulaanbaatar Housing and Infrastructure Project. The borrowing terms of the PBC (loan) were as follows: a 25-year maturity, a 9-year grace period, a 1.75% interest rate, and a 0% default (penalty) interest rate. The borrower was responsible for making 32 equal, semi-annual repayments (worth $3,122,130.12 each) after the expiration of the grace period. The borrower was expected to use the loan proceeds to finance 85% of the total cost ($117,539,016) of two commercial contracts between Beijing Construction Engineering Group Co., Ltd and Mongolia’s Ministry of Roads, Transportation, Construction and Urban Development: a commercial contract (BZA-2010/55-ISHC) signed on November 5, 2010 and a commercial contract (BZA-2010-Construction/172) signed on November 19, 2010. The loan achieved a 99.8% disbursement rate ($99,800,000 out of $99,908,163.60). The purpose of the project was to reduce air and soil pollution in the city of Ulaanbaatar, construct 2,592 apartments in the 7th and 14th districts (VII and XIV districts) of Ulaanbaatar, install water, wastewater, power, and fiber optic utilities outside the apartments in the 7th district and the MNB district of Ulaanbaatar, and construct a 23.3 km power transmission line to deliver electricity to the 7th district and the MNB district. More specifically, this project supported the construction of 1800 apartments the in “Khangai Khothon” (“Хангай хотхон”) apartment complex within the 7th khoroo of Sukhbaatar district in Ulaanbaatar and the the construction of 792 apartments in the “Tsagaan Khuaran Khothon” (“Цагаан хуаран хотхон”) apartment complex 14th khoroo of Bayanzurkh district in Ulaanbaatar. Beijing Construction Engineering Group Co., Ltd (BCEG or Бээжин констракшн инжинеринг групп ХХК) was the contractor responsible for project implementation. As of 2018, all 2592 apartments were constructed and commissioned and all of the utilities outside the apartments in the 7th district were complete. However, at that time, the utilities outside the apartments in the MNB district were only 47.2% complete. According to a project database (http://project.zasag.mn/) maintained by the Government of Mongolia's National Development Department, the project ultimately achieved a 100% completion rate. However, the precise implementation start and end dates of the project are unknown. This project eventually became a target of internal government scrutiny and criticism. According to an internal audit conducted by the Government of Mongolia, the Ministry of Finance did not adequately record an on-lending arrangement with the Ministry of Construction and Urban Development of Mongolia (MCUD) in its consolidated debt database. The Monitoring, Evaluation and Internal Audit Department of MCUD also found that the project lacked sufficient internal financial controls.