Mongolia: Urban Development Sector Project

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Lessons

Engaging public utility companies in the implementation of urban infrastructure projects strengthens their operation and maintenance (O&M) capacities and sense of ownership of the facilities.

Each participating aimag (provincial) government established a project implementing unit (PIU) within its public utility service organization (PUSO) to take charge of day−to−day project implementation. These PIUs, which included the PUSO director, chief engineer, and chief accountant, provided the public utility companies with direct experience in civil works contract administration, including contract management and works supervision, training of operators, and testing and commissioning. This experience enhanced their operation and maintenance capacities as well as their accountability and sense of ownership of the facilities that were established.

Implementation of tariff reforms requires broader policy work.

The project covenant to restructure water supply and wastewater tariffs to achieve full cost recovery was too ambitious. It is unrealistic to expect a single covenant to bring about tariff reforms without broader policy work. Operationalization of the proposed changes supported by the project to the revised law on urban water supply and sewerage use, which created an independent regulatory council to, among others, establish tariffs and fees should be, followed up. Efforts to ensure that the basic prices applied in aimags and cities support the financial viability of PUSOs are also essential.

Subloans for water and sewerage connections take time to implement.

At appraisal, the project allocated $3 million for small loans to (i) finance household water supply and sewerage connections, (ii) build on-plot indoor sanitation facilities and energy−efficient houses, and (iii) improve heat conservation in houses. $0.98 million of the $3 million was to be lent to 1,800 ger area households in Erdenet, Mongolia’s second largest city. The remaining funds were to be utilized in the other project aimags to be identified during project implementation. At completion, $1.2 million went to 216 households in Erdenet and the rest to 265 households in the other aimags. The fewer−than−anticipated borrowers particularly in Erdenet meant that the individual loan amounts were mostly higher than estimated. Most borrowers in fact borrowed to repair or build new houses. Only a few low−income households borrowed to build water or sewerage connections whose actual unit cost, at around 8 times the appraisal estimate of $600, was beyond the poor’s reach. Future similar initiatives should ensure more thorough design of the subloans and enough time to be allotted to preparatory activities, including (i) surveying interested and eligible households, (ii) preparing design drawings and cost estimates, (iii) selecting contractors; and (iv) preparing mains to enable the connections.

Tailored outreach and dedicated targets to ensure women’s access to credit are good practices for future urban development sector projects with microfinance components.

Women beneficiaries of the small loans project component comprised 46.15%, exceeding the target of 30%. The conduct of women−only focus group discussions and individual interviews with female−headed households proved vital in preparing the women to participate. Information dissemination and open−door day events also facilitated women’s decision−making process. Financial literacy training enabled them to arrive at sound financial decisions.

Background

Nomadic and rural Mongolia has experienced rapid urbanization since 1950, which accelerated during the transition from central planning to a market-based economy in the early 1990s. A series of harsh winters or dzuds resulted in large numbers of livestock deaths, damaging herders’ livelihoods. Affected households migrated in large numbers to the capital, Ulaanbaatar, and to provincial or aimag centers for employment and better access to social services and infrastructure. By 2006, the country’s urban population grew to 60% of the national population.

To address the needs of Mongolia’s growing urban population, the government launched a program to provide 40,000 households with opportunities to live in housing with improved basic services. In support of the program and the Government’s Action Plan for 2004–2008, the Asian Development Bank (ADB) approved a loan of $28.2 million for Mongolia’s Urban Development Sector Project in February 2008. The project’s expected impact was improved living conditions and quality of life in the project towns. Its intended outcome was upgraded basic urban services, urban roads, and on-plot facilities in 5 aimags in the eastern and central regions. It had 4 components: (i) basic urban services improvement, (ii) urban road improvement, (iii) small loans for water connections and on-plot improvements, and (iv) institutional development.

Under component 1, facilities for outdoor water supply, sanitation, and heating were built in 5 soum (aimag sub-administrative unit) centers. Under component 2, 12.3 kilometers of urban roads, complete with sidewalks, drainage channels, traffic signs and markers, street lighting, and sheltered bus stations, were constructed in the country’s capital city of Ulaanbaatar. A complete set of road laboratory equipment and trainings on operation and maintenance of the equipment were also provided. Under component 3, small loans were on-lent to eligible households to finance household water supply and sewerage connections, build on-plot indoor toilets and bathrooms and new energy−efficient houses, and improve heat conservation in houses. However, fewer−than−anticipated households borrowed, mainly because of the far higher−than−estimated costs of the activities lined up for support by the small loans.

Overall, the project enabled comprehensive improvements in the living conditions of a total of 293,000 ger residents in the project towns and soums. Ger areas are informal settlements on large plots of land (khashaas), previously unserved or underserved by government urban services. Urban roads in Ulaanbaatar ger areas increased the access to markets and social services of more than 85,000 residents in remote areas and enabled the construction of new schools, health centers, and other social institutions and new businesses along the project roads. Trainings and equipment support improved the operational efficiencies of key sector agencies. The project also enabled the reorganization of 1 public urban services organization (PUSO) into a stock holding company in 2013; similar PUSO reforms were ongoing as of project completion in the other 4 participating aimags.

ADB’s East Asia Department rated the project successful. The Ministry of Construction and Urban Development was the executing agency. The aimag governments and the Ulaanbaatar Municipal Government served as implementing agencies.

Project Information

Project Name:

Urban Development Sector Project

Report Date:

August, 2016

Main Sector:

Multisector

Country:

Mongolia

Project Number:

37697-013

Project/Modality: