Mongolia aims to transform from an energy importer to an exporter and become energetically self-sufficient. Unfortunately, the country remains unable to meet even its domestic needs and still buys electricity from its two neighbors due to its lack of infrastructure. In connection with this, within the framework of the New Revival Policy, a Pre-Forum on Energy Revival was held on Monday ahead of the 2022 Mongolian Economic Forum. Starting this week, a series of meetings are being organized in preparation for the Mongolian Economic Forum, which is set to take place on April 7 and 8.
During the event, economists, energy sector specialists, researchers and experts discussed financing and investment for development projects, public-private partnerships, the current tariff system being implemented in the sector, and the sector’s contribution to Mongolia’s green development.
Minister of Energy N.Tavinbekh highlighted that it is impossible to revive the country’s economy while ensuring the stability of the energy sector. As no major investments have been made in this area for many years, the ministry plans to implement 22 new projects, which have been reflected in the New Revival Policy.
“The construction of the 450 MW Tavan Tolgoi power station will enable us to put the Gobi resources into economic circulation. Oyu Tolgoi LLC will also start supplying electricity domestically. In other words, it will stop buying 120 million USD worth of energy from abroad every year. As this project will be funded by the state, a state-owned company was established,” he informed.
The minister emphasized that research projects in the field of energy and nuclear energy will be introduced and developed in Mongolia. “We also plan to use gas from the natural gas pipeline connecting Russia and China through the territory of Mongolia. Experience in business cooperation in these areas is needed,” he underscored.
The number of electricity consumers in Mongolia has increased by an average of 7 to 8 percent and domestic energy production by 6 to 7 percent annually in recent years. The load on the central power system reached a maximum of 1,308 MW on December 14, 2020, an increase of 155 MW from the peak of 2019 and a surge of 292 MW from four years ago. The maximum allowable amount of imported electricity (245 MW) was exceeded in 2020. On top of that, the state pays 15 billion MNT annually to import energy for the western regional grid. If domestic energy projects are intensified well and promptly implemented, experts believe that Mongolia will be able to put this huge sum of money into circulation domestically without sending it out of the country.
In this regard, the government plans to construct gas-fired power plants in Ulaanbaatar for the winter and connect a total of 1,962 kilometers of 2020 kV transmission lines to the national integrated power system. Overall, the Ministry of Energy estimates that the implementation of the 22 planned projects in the energy sector will boost the total installed capacity of Mongolia’s energy system by 1,765 MW. In particular, thermal power plant expansion projects are expected to increase by 475 MW, making the total capacity of new energy source projects reach 1,290 MW.
Moreover, Minister N.Tavinbekh informed that the ministry will build a power transmission line connecting Choibalsan city to Baganuur District, expand Baganuur thermal power plant, install a 160 MW battery in the central region for integrated power adjustment, build a 300 MW power plant in Bagakhangai District, and expand the Amgalan Thermal Power Plant in 2025. If these projects are not implemented immediately, Mongolia will face difficulties overcoming the energy peak of the coming winter and will need to raise the amount of imported energy, he warned.
In other words, if these projects are successfully carried out, it will be possible to reduce the energy load and meet the domestic need to a certain extent.
Currently, there are nine power plants and thermal power plants, three diesel-electric power plants, seven hydropower plants, three wind farms and seven solar power plants in Mongolia. Hydropower plants in Mongolia fully supply energy to some soums of western provinces. Therefore, the ministry aims to begin the construction of the 90-megawatt Erdeneburen hydropower plant in upcoming April pursuant to the agreement between Mongolia and China. The project, which has been stalled for many years due to external and internal factors, is seen as crucial for Mongolia to achieve energy independence and considered significant to ensuring long-term energy supplies to western provinces. The new plant is expected to produce 366 million kWh of electricity annually and supply energy to the Altai-Uliastai regional power grid. It is scheduled to be commissioned sometime between 2028 and 2030.
ELECTRICITY TARIFFS TO SPIKE BY 28%
Minister N.Tavinbekh remarked, “By setting energy tariffs at real price and regularly indexing them in the future, we will be able to ensure the normal repayment of loans and their interest used to finance projects and activities reflected in the New Revival Policy in accordance with business principles”.
In specific, electricity and heating tariffs will increase by 28 percent in 2022 in line with the cost. This is because the Ministry of Energy is supplying energy at a price that is 50 percent lower than its cost and is expecting a large loss. In 2020 alone, the energy sector incurred a loss of 67.9 billion MNT as prices and tariffs have not been changed since 2015. Demand for electricity and heating is expected to increase in connection with the creation of new satellite cities and free economic zones, the minister explained.
Experts estimated that if tariffs are indexed regularly until 2030, the energy sector will be able to operate independently financially and economically and repay its loan interests without burdening the state budget.
Minister N.Tavinbekh said, “The winter of 2022 to 2023 will be very difficult. We have no choice but to impose restrictions at this rate. In the 21st century, it is crude to talk about restrictions but we have to consider today’s reality. I think this is due to the fact that this issue has not been discussed at the decision-making level for a long time. Without building a new source of energy, we will not be able to increase consumption, both in terms of heating and electricity. In addition, about 40 percent of the equipment currently in use has expired. Developed countries are studying the source of hydrogen. We also need to move to this technology.”
Currently, the government is providing electricity tariff discounts to all households until May 31, 2022. It is currently covering an average of 41,300 MNT worth of electricity consumed by apartment households and an average of 58,300 MNT electricity used by ger area residents.
To mitigate the economic impact of the COVID-19 pandemic, the government has offered discounts, including full coverage for electricity and other utility bills to households and enterprises since December 1, 2020. By the end of 2021, 890 billion MNT had been spent on this work. In order to make up for these costs, electricity prices are to be raised soon.
‘RAISING ENERGY TARIFFS WILL AID LOAN REPAYMENT’
CEO of Development Bank N.Manduul emphasized that the bank should finance major strategic projects proposed by Parliament and Cabinet. He added that if the bill on public-private partnerships is passed, it will be possible for the bank to finance more energy projects.
Development bank has financed some energy projects in the past. For instance, the expansion projects of the Choibalsan Thermal Power Plant and Thermal Power Plant No. 4 have received funding from the bank.
He suggested that if the policy of gradually increasing electricity tariffs is implemented, it will be possible to repay ongoing and future loans without any problems.
Globally, to reduce greenhouse gas emissions, banks and financial institutions are beginning to avoid financing coal-fired power plant projects. Therefore, the country must clarify its policy in this regard, N.Manduul noted.
‘IT IS NOT FEASIBLE TO IMPLEMENT ALL PROJECTS’
During the forum, regarding the financing of the 22 energy projects, lawmaker B.Choijilsuren expressed that it is impossible to implement all projects, before mentioning the overuse of electricity in Ulaanbaatar. First of all, Thermal Power Plant No. 3 should be expanded, he proposed.
The lawmaker commented, “Minister of Energy N.Tavinbekh shared plans to build power plants in several places with gas sources. while focusing on these projects, the government may freeze other projects. The economic situation will also play a role. The priority of any country is to maintain its economic independence. Sustainability is crucial. Therefore, we will not be able to spend 13 trillion MNT on projects set forth under the New Revival Policy in the coming years. Of the 22 energy projects, only the most important ones need to be implemented.”
GOVERNMENT TO IMPLEMENT SPECIFIC TAX POLICIES
Deputy Minister of Finance S.Mungunchimeg reported on major energy projects included in the New Revival Policy. The policy clearly outlines sub-projects and programs for the 22 projects to be implemented in the energy sector.
The projects are categorized into the following three levels in terms of funding and feasibility study:
• Green level: Some of the seven projects funded by Development Bank of Mongolia, have received concessions and foreign aid. Total funding is 6.3 trillion MNT.
• Yellow level: There are six projects that can be funded. Three of them are planned to be funded by Development Bank and the other three projects can be launched with foreign aid.
• Red level: Feasibility studies, funding and financial estimates of eight projects have not been conducted. The total funding is estimated at 5.2 trillion MNT.
The country cannot carry out these large-scale developments alone. Therefore, partnership with the private sector is essential to implement the New Revival Policy. In this regard, the Ministry of Finance is developing a bill on public-private partnerships, which provides for cooperation with the private sector on large public investments.
Moreover, certain tax policies will be implemented within the legal framework to attract investment and long-term cooperation, says Deputy Minister S.Mungunchimeg.
She stressed, “In order to attract foreign investors, special attention will be paid to not downgrading international credit ratings. By focusing on ensuring financial discipline and creating favorable conditions, we have the opportunity to attract foreign and domestic investment. Therefore, we are working to implement a clear policy in this direction.”
Prior to the Mongolian Economic Forum in April, each of the six objectives of the New Revival Policy (the revival of energy, border checkpoints, industrial development, urban and rural development, green growth and productivity of government organizations), will be discussed at a series of meetings from March 21 to March 29.
