IFC’s appraisal considered the environmental and social management planning process and documentation for the Project and gaps, if any, between these and IFC’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through implementation of these measures, the Project is expected to be designed and operated in accordance with Performance Standards objectives.
PS 1 - Assessment and Management of Environmental and Social Risks and Impacts
Environmental and Social Management System
MTZ has developed a set of company- specific E&S and OHS procedures based on the Mongolian national laws and regulations covering environmental protection, environmental impact assessment, waste, toxic and dangerous chemicals, occupational safety and hygiene, as well as Mongolian National Standard on railway safety. As per the ESAP #1, MTZ will upgrade its current E&S processes by developing an ESMS in line with IFC PSs. As a part of the ESMS, MTZ will establish an overarching policy defining the environmental and social objectives and principles that guide the Project to achieve environmental and social performance in line with PS 1 encompassing also the performance of contractors, will disclose the policy and will communicate it to all levels of its organization.
ESMS will also include contractor management, construction supervision and oversight requirements outlined in IFC Good Practice Note on Management of Contractors’ Environmental and Social Performance.
Identification of Risks and Impacts
The Project EIA was prepared in 2025 by a licensed company in line with the local regulations. At the time of IFC due diligence, MTZ has hired an environmental and social consulting company to conduct a supplemental Environmental and Social Impact Assessment (ESIA) in line with IFC PSs, incorporating latest changes in the project design (including livestock and wildlife underpasses) and operations plan, establishing baseline conditions based on secondary data and field surveys, and including results of noise and air emissions modelling, projected waste and wastewater generation and management, biodiversity studies, review the efficacy of grievance mechanism and outstanding labor disputes, account for associated facilities and potential cumulative impacts, any outstanding impacts on herder communities and gaps against PS 5 in government-led land acquisition process (see more details in the sections below), the outcomes of series of public consultation and stakeholder engagement activities performed since the commencement of construction in project in March 2025, and physical climate risks (ESAP #2).
Mitigation measures for project construction and operation will be presented in the supplementary management plans and monitoring programs developed as a part of the ESIA. As per ESAP #3, MTZ, in line with its updated corporate ESMS, will develop and implement construction and operations E&S management plans (ESMPs) and procedures for the Project including assigned roles and responsibilities aligned with IFC PSs and relevant and applicable WBG EHS Guidelines. ESMPs will also include contactors supervision management plans including check and control mechanisms for adherence to applicable IFC PSs. Supplemental ESIA including ESMPs will be disclosed upon completion.
Organizational Capacity and Competency
The Project is managed by the Project Unit in the MTZ’s Department of Projects, Research and Design. The Project Unit consists of 21 MTZ staff including 2 occupational health and safety (OHS) specialists, 1 environmental specialist and 1 community liaison specialist, all reporting to Project Manager. In addition, MTZ has a corporate OHS and Environment Department that reports to the office of Chief Engineer. Based on necessity, specialists from corporate OHS and Environment department are involved in providing expert advice to the project team.
MTZ will require current and future contractors to assign dedicated EHS staff with adequate technical E&S knowledge and experience to comply with Project’s requirements, consistent with IFC Performance Standards (ESAP #4).
Corporate OHS and environmental department will oversee the E&S aspect related to railway operations. MTZ will assign qualified staff to oversee the transportation safety risks and ensure safety and security of the tracks, locomotives and freight rolling stock to avoid accidents and incidents such as collisions and derailment (ESAP# 4). The Project will also include in their training plan, a training on ESMS for relevant project personnel including construction and O&M teams (ESAP #4).
Emergency Preparedness and Response
MTZ has developed a series of emergency response plans covering the project facilities in line with requirements of the Mongolian legislation, addressing such scenarios as natural disasters, fires and explosions, vehicle accidents, chemical spills and leaks, and health epidemics. They include provisions for search and rescue, emergency assistance to affected people, cleanup and reconstruction. They also contain provisions for a tiered response and management responsibilities as well as equipment requirements. In line with ESAP #3 the Project will develop site specific ERPs for all project facilities.
Monitoring and Review
Construction supervision has been conducted by the group of engineers and OHS and environmental staff in the Project Unit. MTZ will monitor the key E&S parameters and performance indicators during construction and operations. The ESMP will include requirements for monitoring air emissions and ambient air quality, noise levels, waste generation and disposal, wastewater discharges and water quality, construction traffic, safety performance, and community relations and complaints. An E&S monitoring plan for the operations phase will be developed within the scope of corporate ESMS update, under ESAP #1, that will cover relevant parameters and indicators, consistent with operations phase E&S management plans.
PS 2 – Labor and Working Conditions
MTZ currently employs a total of 1,190 people, with 70% men and 30% women. Of these, 90% have permanent employment contracts, while 10% are on short-term renewable contracts. A designated team of 21 employees is assigned to oversee the development and construction of the Project. MTZ had has initially contracted around 60 local construction companies employing around 3,000 workers (all Mongolian nationals) for the embankment works with only a few companies remaining at this stage for the completion of rails and sleepers. Temporary and mobile workers accommodation camps were established by contractors along the railway RoW based at the locations of construction works. At the time of the IFC due diligence majority of contractor camps were in the process of decommissioning and dismantling.
Human Resources Policies & Procedures
MTZ has human resources (HR) policies and procedures that are consistent with the requirements of Mongolian labor law and IFC PS2 requirements. In addition, as an SOE, MTZ aligns its labor practices with relevant International Labor Organization (ILO) conventions ratified by Mongolia, including core labor standards on forced labor, child labor, non-discrimination, and freedom of association.
All workers receive clear, written contracts and HR information is provided in the form of an employee handbook at the time of induction. MTZ has policy that includes commitments to freedom of association MTZ enters into CBA with the workers union which is updated on the biennial basis. MTZ’s HR policy specifies non-discrimination and equal opportunity. All the hiring and promotion are merit-based.
Labor management in general meets national laws. A supplementary ESIA will include review of any outstanding labor issues. As per ESAP #3, MTZ will develop a labor management plan as a part of the supplementary ESIA and, if required, will retroactively address any outstanding issues (ESAP #6).
Grievance Mechanism (GM)
MTZ has established a grievance system aligned with Mongolian employment law and IFC PS2 provision. This mechanism contains anonymous reporting channels and is accessible to all workers through various channels such as written submissions, hotline, email, or in-person reporting. All grievances are directed to the HR department, which is responsible for timely resolution and proper documentation. Complaints related to discrimination and harassment are handled confidentially, with a complainant-centric approach.
Unresolved issues and labor complaints were escalated to MTZ management. Efficacy of the grievance process will be assessed as part of supplementary ESIA.
Occupational Health and Safety
MTZ developed a series of OHS procedures and workplace instructions which are based on the current legislation in Mongolia including Law on Railway Transport (2007) and Law on Occupational Safety and Health (2015). They are aligned with good international industry practices (GIIPs).
MTZ has OHS incidents reporting and investigation procedures following the Mongolian legislation. Two (2) lost time injuries involving contractor workers have been recorded and investigated in relation to the Project in 2025 which is slightly higher than industry benchmark.
MTZ conducts site contractors’ safety inspections regularly and site-specific OHS documentation were available on-site. All workers were observed wearing the proper personal protection equipment (PPE) Annual medical examination is compulsory for all employees and MTZ retains the contract with private medical provider to deliver such services.
As a part of the ESMS (ESAP #1), MTZ will update its procedures in line with IFC PSs to put in place procedures for risk assessment and hazard identification, safe systems of work and near-miss reporting and investigation. MTZ will also update the workplace safety instructions for the operations stage including rolling stock maintenance and exposure to hazardous materials/ processes (ESAP#6).
PS 3 – Resource Efficiency and Pollution Prevention
Resource Efficiency
Total volume of water required for construction purposes was 126,800 m3. Water was abstracted from 17 new groundwater wells based on the permits issued to MTZ by the local water basin administrations and soum governor’s offices specifically for construction purposes. The remaining construction work (installation of rails and sleepers) is not expected to require significant water withdrawal. During operations rolling stock will be maintained and washed in the existing facilities leased from Ulaanbaatar Railway Company, which are connected to the municipal electricity and water supply.
Based on the available information project is not expected to produce more than 25,000 tons of CO2 equivalent annually. MTZ will monitor GHG emissions in line with PS3. Verified reports and the annual carbon footprint of the Project will be shared with IFC as part of the annual monitoring reports (AMR) (ESAP #7).
Pollution prevention
Construction of the RoW required abstraction of soil and sand from 39 quarries created specifically for the Project and located outside and along the RoW. The location and the size of the quarries were approved by Soum Governor’s Office (county level) and Environmental Department (province level). 13 out of 39 quarries are now reclaimed and backfilled to the original profile with fertile topsoil (previously stockpiled) based on the quarry rehabilitation plans. As per the ESAP #9, MTZ, will conduct the closure audit of the quarries to validate the compliance with WBG EHS guidelines for Construction Materials Extraction and GIIP, and, specifically the objectives of physical, chemical, and ecological habitat integrity. In case of identified gaps, MTZ will develop mitigation plans and report to IFC on their implementation.
Wastes
For domestic and non-hazardous construction waste generated during construction MTZ will conduct the closure audit of contractor camps and construction sites to validate the compliance with WBG EHS guidelines, and specifically the objectives of site rehabilitation, material recovery, removal of underground services (e.g. septic tanks) and vegetation restoration (ESAP#10). In case of identified gaps, MTZ will develop mitigation plans and report to IFC on their implementation. During operations solid and hazardous waste will be segregated, stored and disposed according to Waste Management Plan (WMP) at the certified hazardous waste management facility in line with IFC PS 3 requirements (ESAP #3).
Noise
Noise during construction is caused by mobile and stationary equipment and vehicle movements. Noise impact from the remaining works will be short-lived and are anticipated to be negligible. As a part of the supplementary ESIA, the Project will be required to conduct baseline noise assessment and operational noise modelling and, if required, develop mitigation measures using thresholds indicated in the WBG EHS guidelines and Good International Industry Practice (GIIP). Thus, MTZ, as per ESAP #3, will develop an operational noise management plan.
Wastewater
Potential deterioration of surface and ground water quality during construction may occur from wastewater discharges from worker sanitation, cement batching and run-off from aggregate storage. MTZ and its contractors developed construction wastewater management plans covering stormwater and sanitation, erosion control and water monitoring. ESMPs will include wastewater management plan during operations in line with the requirements of the EHS Guidelines. As per the ESAP #3, MTZ will communicate the requirements of these ESMPs to contractors involved in the rolling stock maintenance which will be reflected in legal agreements.
PS 4 – Community Health and Safety
There are no residential or other structures along the RoW. Safe passage for vehicles, pedestrians and animals across the railway will be provided via 14 underpasses which were constructed in consultation with communities and soum administrations. ESMPs will contain traffic safety plans and community health and safety plans in line with IFC PSs which will include traffic hazards assessment, level crossing management, worksite traffic control, signaling and communication systems, and community engagement, among others (ESAP #3).
For new facilities, such as railway stations, MTZ will incorporate the IFC PS4 principles in their design and operations including universal access, hazardous material safety and life, fire and safety requirements. The Project in both construction and operational phases does not anticipate deployment of armed security forces. Each contractor has its own unarmed security staff stationed only at labor camps, storage areas and vehicle parking areas for nighttime surveillance. As per the ESAP #3, MTZ will develop security management plan in line with IFC PSs, including security policy and code of conduct, rules of engagement and appropriate use of force. The plan will be communicated to all security contractors reflected in the legal agreements and terms of reference.
PS5 – Land Acquisition and Involuntary Resettlement
The embankment for the 87 km railway has been constructed primarily on state-owned land which is free of structures and uninhabited. Impacts on herders utilizing the state-owned pastureland have been addressed through the development of underpasses at locations selected in consultation with the herders. As a result, no disruption to herding routines is anticipated, and no economic displacement of herders is expected. MTZ has maintained constant engagement with herder communities throughout the selection and construction of underpasses. A total of 14 underpasses were constructed, exceeding the originally designed 11 underpasses, to further minimize disruptions to herding routes. Supplementary ESIA will review the consultation process and impacts on herders and, should any outstanding issues be identified, MTZ will develop an action plan and resolve displacement impacts in line with PS 5 (ESAP #2).
Fifty (50) undeveloped land parcels (0.07 to 0.1 hectares in size) within the RoW and safety buffer zone have been identified for acquisition prior to the railway becoming operational. None of these parcels had temporary or permanent structures at the start of construction, and there were no identifiable dependencies on the land. No land –related disputes were identified at the time of appraisal. These parcels were originally granted by the local government under Mongolia’s Land Distribution Program, which was initiated in the early 1990s to formalize land tenure and support rural development. Recipients of allocated land were generally required to develop the land within one to three years.
The local government is leading the land acquisition process in accordance with established legal procedures. Valuation is conducted by an independent appraiser or an authorized government body to ensure that compensation reflects the current market value of the land and assets.
A public meeting with landowners is scheduled for April 2026 to discuss preferred mitigation measures—either “land for land” or monetary compensation. MTZ will actively participate in the government-led land acquisition process, maintain meeting records, and, in case the gaps against the PS5 are identified, will develop an action plan with appropriate mitigation measures to close such gaps (as the ESAP #11).
PS6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
The Project is located within the Mongolian-Manchurian grassland EcoRegion which has been substantially modified for grazing. The grassland habitats maintain populations of ungulates (Mongolian gazelle, Procapra gutturosa, IUCN LC and Bactrian camel Camelus bactrianus IUCN LC). Mongolian marmot Marmota sibirica IUCN EN is known from the northern areas of the grassland, including within the vicinity of Ulaanbaatar.
Screening based on the EIA, review of available data and discussions with species experts identified that critical habitat is unlikely, including for Mongolian gazelle and Mongolian marmot. As part of the supplementary ESIA, information on potential impacts on these two species will be updated given the new information on the project design (ESAP #2).
The railway passes through grassland habitat which consists mainly of native species according to the local EIA, indicating that the majority of the impacted areas are natural habitat (estimated to be approximately 150 hectares). MTZ will be required to undertake further assessment as part of the supplementary ESIA to quantify the residual impacts to natural habitat. Actions to achieve no-net-loss will be required and outlined within a Biodiversity Action Plan (BAP) (ESAP #12) that may include contributions to the restoration of grassland habitats in protected areas, grazing pastures or within the railway concession. To assist in the restoration of natural habitats, a site rehabilitation program for disturbed areas using native species is to be implemented.
The migration of ungulates in the landscape was documented as part of the local EIA. These include identification of small herds of Mongolian gazelle along the route as well as stock and other domestic animals (camels and horses). To facilitate movement of these species within the landscape, MTZ sought advice and concurrence with a conservation NGOs on the design of fauna passages. As a result, nine (9) underpasses and bridges have been constructed along the route to facilitate movement. Additionally, fencing along the route will be focused on areas of high human presence and livestock density to avoid collision risks. MTZ will be required to prepare a dedicated monitoring program for the use of the fauna passes and barriers created by fencing as part of the BAP monitoring program (ESAP #12), including adaptive management.
Soaring birds including Steppe eagles Aquila nipalensis IUCN EN were not detected during baseline surveys but are known to occur in the landscape. MTZ will be required to install Bird Flight Diverters along the transmission line associated with the Project to reduce risks of fatalities from collision and implement a Post Construction Fatality Monitoring Program (PCFM) (ESAP #12).
