Mongolia Compact

The Millennium Challenge Corporation (MCC) and the Government of Mongolia 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.

Mongolia is a landlocked country in Asia covering 1.56 million square kilometers, roughly the size of Western Europe. Mongolia’s limited, aging transportation infrastructure and young governing institutions have been shown to be significant constraints to economic growth and development. These constraints are acute 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 a population that was highly dispersed and pastoral. 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.

In developing their proposal, Mongolia’s National Council, the team formed by the government to develop their compact proposal, relied on the national development plan and poverty reduction strategy papers and on 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 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.

• Compact Agreement
• M&E Plan

Compact Changes

The Mongolia Compact included diverse projects that funded infrastructure and technical assistance. Because MCC compacts are a fixed amount implemented over five years, partner governments must focus on attaining compact results while 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 by constructing 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 and other stakeholders to address the growing problem of winter-time air pollution in the 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 meant constant monitoring of compact programs’ status, progress and viability.  At the time the Mongolian Compact came to a close, $ 268,993,805.23 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.