Mongolia Water Challenges & Potential Spanish Delegation to Ulaanbaatar

1. Mongolia Water Challenges & PotentialSpanish Delegationto Ulaanbaatar June 5, 2014

2. Private Sector Arm of the World Bank Group IFC Overview Investment Services Advisory Services IFC Asset Management Company • Loans • Equity • Trade finance • Syndications • Securitized finance • Risk management • Blended finance • Access to finance • Investment Climate • Sustainable Business • Public-Private Partnerships • Wholly owned subsidiary of IFC • Private equity fund manager • Invests third-party capital alongside IFC $5.5 b under mgmt (FY13) $232 m (FY13) $49.6 b portfolio (FY13)

3. IFC FY13 Committed Investments: $24.8 Billion IFC Also Growing in Mongolia: Over $400m in cumulative financing: Financial Services, Wind-Power, Housing, Hotel, Agribusiness… 3

4. IFC Water & Waste Business Globally $2.1bn committed across 126 projects since 2003 (1)(2) CAF • $138mm committed • 12 investments • 4.6mm people reached CEA • $521mm committed • 26 investments • 21.5mm people reached ECA • $463mm committed • 20 investments • 6.4mm people reached LAC • $537mm committed • 36 investments • 30.1mm people reached MENA • $232mm committed • 9 investments • 10.1mm people reached Note: As of June 2013. • Includes water related deals in Water, Waterwaste, Manufacturing, Agribusiness and Services sectors. • Includes Organica transaction which is not reflected in any above mentioned regions. SA • $229mm committed • 22 investments • 8.4mm people reached Including Some Spanish Companies in UB Today: Abengoa, Acciona, Gamesa, GNF (other infra sectors)

5. Mongolia: Strong GDP Growth… Recent declining trend: 11.7% 2013, Est. 10% 2014

6. …With Challenges… • Investment Climate and Macro-economy need more long-term stability (FDI down 54% 2012, 65% Q1 2014; MNT Depreciated ~30% in past 18 months) • Concentrated Markets (China & Russia; landlocked) • Infrastructure and logistics gaps need to be developed to lower costs and support growth • Standards remain low limiting value-add, exports • Small domestic market limits interest by foreign investors and risks oversupply in medium-term

7. …But Improving “Doing Business” Ranking…

8. …And Long-Term Growth Drivers • Miningis foundation of strong growth (OT mine alone expected to contribute more than 30% of GDP once completed; TT and others to come) • Infrastructure(power, heat, transport, urban) will need to be built (estimated need of over $20 billion in next several years) • Non-mining exports has potential to vastly expand (agri, green power, import substitution) • Urbanization, young demographics (56% under 30), and rapid middle class growth (potential to double income every 4-5 years w/low teens GDP growth)

9. Mongolia’s Water Challenge: UB Water supply and demand gap in Ulaanbaatar Source: Tuul Water Basin Integrated Water Management Plan, New Ulaanbaatar City Master Plan, PwC/ Deltares calculations Right Pricing, Investment, Sustainable Use Key take-aways: • Water demand exceeds current supply capacity in all scenarios. • In the high and medium water demand scenarios, Ulaanbaatar will run out of water within the next 10 years. • Existing water resources are vulnerable to pollution. • The water supply and wastewater infrastructure is in need of a major overhaul and expansion, esp. in the Ger areas. 6

10. Mongolia’s Water Challenge: South Gobi Water supply and demand gap in South Gobi Source: MEGD: Integrated Water Management Plan of Mongolia, 2013, PwC/ Deltares calculations Note: incl. water basins: Umard Goviin Guveet-Khalhiin Dundal Tal, Galba-Uush-Dolodiin Govi and Altain Uvur Gobi Basins Water Mgnt, Monitoring, Info Sharing Key take-aways: • In the high demand scenario water demand is estimated to exceed available water resources between 2021 and 2030. • High water risks, incl. quality and quantity, are expected locally in all scenarios. • Competing water demands create conflicts between the mining sector, herders and local communities. • Non-compliant (mining) companies and ninjas have negative impacts on the environment. 6

11. Key Take-Aways (1) • Rising demand for water (Household & Mining): UB: fast urbanization, rising middle class, more modern housing means higher water consumption – big need for modern water infra • Constraining supply: Low precipitation, high evaporation, poor infra (high leakages), climate change impact – Efficient & sustainable usage • Old and missing infra capacity: 30% of soums (counties) do not have water systems(MOEGD); Prioritizing fiscal, private, and PPP financing

12. Key Take-Aways (2) • Sensible policies (pricing), legal framework (PPP): Subsidized (under) pricing for households, but industrial tariffs have been raised; international standard PPPs framework (water & other infra) • Sustainable usage of water (societal awareness): Livestock is biggest water user in Mongolia (need to fix overgrazing); Recycling for mining (i.e. OT recycles 70-80% of water use) • Much needed investment & technology: “Bankability” is critical to attract private sector. Key: stable & predictable investment climate

13. Thank You