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Highlights from Baseline study on low carbon
FDI into the electricity sector of Mongolia
Ms Odonchimeg Ikhbayar,
Economic Policy and Competitiveness Research Center
November 15, 2012
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• Country profile
• Economic growth and need for energy
• Investment environment
• Energy sector status
• Need for clean technology
• Potential for international cooperation
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Contents
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Capital Ulaanbaatar
Land Area (km2’000) 1,564.1
Exchange rate (against USD, 2011) 1,400
Population (millions as of 2011) 2.8
GDP (USD billions, 2011) 8.5
GDP per capita (USD) 3048
Real GDP Growth (%) 17.3
Export (USD billions) 4.7
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Country profile
Mongolia is experiencing three major transitions simultaneously:
• From a centrally planned economy to a free market economy
• From an import dependent domestic market to an export oriented industry
• From a high-carbon to a low-carbon society
Source: Statistical bulletin, National statistics office
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Rapid economic growth and challenges
Mining driven rapid economic growth is projected to continue well into the future
Thus, the need for energy is projected to increase substantially in the near future
Source: Mongolia Growth Group
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Foreign direct investment
FDI in Mongolia have increased tremendously in recent years
However, the Mining sector alone represents more than 80% of FDI
Source: World Bank Data
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• Currently the energy sector is 100% state controlled. However,
in 2012, the government has noted that the energy price will be
gradually liberalised until 2014
• In this regard, the energy sector should be gradually changing
towards a free market regime.
• The Foreign Investment Law of Mongolia (FILM), which was
enacted in 1993, transformed the anti-business environment of
the socialist era into today’s generally investor-friendly
regime.
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Investment environment
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Mongolia has the lowest tax rates in
the region
Corporate tax
10%, 25%
VAT 10%
SME production equipment and
utilities are exemption from customs tax and
VAT
/Government Resolution No.100
approved on 6th April of 2011/
High Technology Industries will be
subject for incentives and loan
guarantee
/State Policy of High Tech Industry approved on June
2010/
7200 items can be exported to the EU markets on GSP+
scheme with
zero import tariff
Investment environment
Source: Foreign investment and foreign trade agency of Mongolia
(now part of newly formed Ministry of Economic Development)
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• Mongolia: victim of global climate change and yet in some way
contributing to increased use of carbon as producer and exporter of
coal
• Ulaanbaatar city faces serious air pollution problems, mostly due to
increased number of “ger” districts using use brown coal for
wintertime heating
Climate change
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• The current installed capacity in Mongolia is 1,062 MW (by 2011), but
only 836 MW (80%) is available due to the aging of power plants
• The energy sector of Mongolia consists of 4 major independent electric
power systems and one independent power station:
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Energy sector status
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Main energy source: Coal
• The 7 thermal power plants with total
installed capacity of 856 MW
• The aging of the existing power plant
infrastructure results in having low-
efficiency output and lacking clean
technologies
Energy output, 2010 (per cent)
Coal fired
plants
93.82%
Imported
energy
4.93%Hydro
plants
0.78%
Diesel
stations
0.47%
Source: Ministry of mining and energy
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Summary of coal-fired power plants in Mongolia
No. Coal-fired
power plants
Capacity
(MW)
Available
(MW)
Share in
CES (%)
Location Year
installed
Efficiency
(in 2009)
1 CHP2 21.5 18 2.7% UB 1961 21.0
2 CHP3 136 105 17.5% UB 1968 38.6
3 CHP4 580 452 70.2% UB 1983 40.1
4 Erdenet plant 28.8 21 3.6% Erdenet 1987 40.8
5 Darkhan plant 48 39 6% Darkhan 1965 28.5
CES subtotal 814.3 615 100% -
6 Dornod plant 36 - Dornod 1969 19.4
7 Dalanzadgad
powerstation
6 - Umnugovi 2001 -
Total 856.3 -
Source: Energy Statistics of Mongolia 2009, Energy regulatory authority
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Coal reserves and production
• Estimated coal reserve:
200 billion tons
• Of which, exploration has been
done:
20 billion tons
• To be used for energy purposes:
12.2 billion tons (2 billion coking
coal, 10.1 billion thermal coal)
• In 2011 produced:
33 million tons
Source: Ministry of mining and energy 2011
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Due to:
• Air pollution and climate change
• Increasing urban population
• Mining driven rapid growth
• Potential shortage of energy
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Better low carbon technology is needed
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Need for more extension (investment)
Energy transmission grids
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• Central Regional Electricity Transmission Network has been
operating as a Single Buyer since September 2002
• Single Buyer purchases electricity from the 5 Power Plants
operating in the Central region and through import from
Russia and sell it to the 10 electricity distribution companies.
• The SBM purchases electricity and power from power stations
at different rates.
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Regulatory environment and state subsidy
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Energy shortage is projected
• Mongolia is most likely to face an energy supply gap
But neither the Mongolian state (total budget of $2.3 Billion as of 2010) nor the
domestic private sector (over 65 per cent of total GDP $6.0 Billion) have the capacity to
build a new power plant on it own
Source: Ministry of mining and energy
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Business community requires more
Energy Infrastructure Future Energy Supply
Source: Mongolia in World Competitiveness Report
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PPP in Energy Sector
Law on Concessions of Mongolia (PPP) adopted on 28 January, 2010.
– Puts state and local properties into economic utilization
– Vast business opportunities for investors
– The list of concession items is approved by the state and local
administrative bodies
– Decisions shall be made whether to finance from state fund, to make a
guarantee, to organize a tender or to conclude a direct agreement
– Foreign legal entities or their consortiums may submit an unsolicited
proposal to enter into a concession agreement
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• 820 MW CHP-5 project is set to be
implemented under concession
agreement
• According to the project plan, the
construction of the facility`s first section
will be completed in 2015, and second
in 2020
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Planned activities under PPP
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• State overregulation with fixed
prices and high subsidies as of
today
• Relatively weak regulatory
environment
• Weak infrastructure
• Uncertainty and bureaucracy
• Lack of skills
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Challenges and opportunities in promoting
low carbon FDI into Mongolia
• Abundant resource of coal as
well as wind and other renewable
sources
• Growing domestic demand of
energy
• China demand
• Government is keen to promote
green technologies
• PPP, concession law
• Planned infrastructure
development
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Positive outlook towards low carbon society
• Law on renewable energy to encourage producers (Jan 2007)
• Establishment of new “Ministry of energy” in 2012
• Establishment of new Energy regulatory committee
• State made clear signal and message (RENEWABLE
ENERGY must generate 3-5% of total energy supply by 2010,
and 20-25% by 2020)
• As of early 2012, the government has promised to gradually
liberalize the energy price until 2014
• A new project for CHP No.5 underway, with feasibility study
done, government in negotiations with the tender winners
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Potential for international cooperation
• We recognize a potential for multi-dimentional international cooperation in
the energy sector:
– State to state (for example US, Japan, German governments have given a huge
amount of support into the sector since 1990)
– International and bilateral organizations to state
– International investor to state
– International investor to domestic company
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Thank you for your attention
ECONOMIC POLICY AND COMPETITIVENESS
RESEARCH CENTER
Central tower 1010а, Sukhbaatar district
Ulaanbaatar city, Mongolia
Tel: (976) 11 321927 Fax: (976) 11 321926
email: [email protected] Website www.ecrc.mn
