Mongolia
has undertaken important steps to accelerate economic growth, to reduce
poverty, to increase private sector participation, to strengthen civil
society, and to create the institutional environment for greater private
sector participation. During the last years the Government of Mongolia
achieved significant results with regards to implementation of necessary
energy sector restructuring to make it appropriate for market economy,
to increase private sector participation, to commercialize energy
sector enterprises, and to implement phased privatization of enterprises.
The Government of Mongolia gives an exceptional importance to energy
sector development as a main sector of infrastructure, and its main
objective for energy sector development is to create a financially
sustainable energy sector that will provide cost-effective energy
access, thereby contributing to poverty reduction and enabling greater
private sector and civil society participation. Mongolia should create
favourable conditions for foreign direct investment (FDI) in the energy
sector, and the energy sector should be developed within a regional
energy context, taking advantage of new technologies and sources of
energy to further promote economic efficiency and environmental sustainability.
Recent
government actions
The energy
sector in Mongolia is an important part of the infrastructure of
the country and economy, and it is obvious that socio-economic development
in general directly depend on the energy sector.
Due to traditionally strictly controlled prices, the energy sector
is not financially sustainable at present, and the sector utilizes
almost half of sovereign guaranteed loans. Foreign loans of around
US$400 million were directed to the energy sector from 1992 to 2000,
being used to improve reliability of operations and to buy necessary
spare parts. Still, work is needed to make the sector self-sustainable.
The main objective of energy sector development is to make the sector
financially self-sustainable and efficient through providing policies
appropriate for the current socio-economic situation and present
and future market requirements.
The Energy Law, adopted by Parliament in 2001, provides the legal
basis for energy sector restructuring. With the Law, the Government
believes that conditions for independent regulatory mechanisms,
private sector involvement and introducing competition in the energy
sector are in place.
With the establishment of the Energy Regulatory Authority (ERA),
which is an important step towards creating an independent regulatory
mechanism, an enabling institutional environment for foreign and
domestic private investors to enter the energy market has been created.
It is the Government’s hope that by establishing independent
regulatory environment, efficient players in generation, transmission
and distribution will enter the sector.
The first stage of restructuring included unbundling of energy sector
enterprises, and the creation of 17 joint stock companies (JDC’s)
(power plants, transmission and distribution companies) and 1 limited
liabilities company. In accordance with relevant laws, the shares
of those enterprises were entitled to the Ministry of Infrastructure,
State Property Committee (SPC), and the Ministry of Finance and
Economy (MOFE).
In order to increase private sector participation, there is a need
to resolve inter-company arrears between customers, distribution
companies, power plants and coal companies, to introduce tariff
adjustments to the level of cost recovery, to reduce losses at distribution
networks, to improve bill collections, and to introduce advanced
technology for billing.
The “Mongolia Integrated Power System” programme, approved
by the Government and adopted by Parliament, aims to develop reliable
and affordable energy supply, to contribute to regional development
and to improve energy security.
At this moment there are 4 aimag centres, and more than 160 soums,
which are not connected to the central grid. The aimag centres spend
about 5 billion Tugrugs a year on diesel fuel. Some aimags, such
as Bayan-Ulgii, Uvs and Khovd, are connected by high voltage electricity
transmission line to the Russian Federation. Due to lack of installed
and reserve capacities, this situation creates a heavy dependence
on electricity import.
In the long run, the Government of Mongolia believe that the implementation
of the “Mongolia Integrated Power System” programme
would reduce operational expenses, create favourable socio-economic
conditions for regional development, and create reliable electricity
supply.
Economic
and financial performance
The energy sector has made considerable progress
over the last decade, changing from a state-owned supply-side agency
into a number of commercialized entities. However, the transformation
of these entities into dynamic consumer-driven companies is yet
to occur.
Problems remain in transforming the energy sector: first, the issue
of the “cycle of debt” (tariffs have traditionally been
too low and customers have not been paying their bills, making utilities
unable to pay their fuel bills — hence, the coal mines have
not been able to maintain the necessary levels of operation because
they could not afford spare parts or other basic charges). Resolving
this situation is the energy sector’s most critical issue,
and the Government is committed to ending the problem. All stakeholders
must take responsibility for the problem and accept a role in its
resolution. Tariffs have been increased but need to be raised further.
Generators are working with the coal mines to develop an appropriate
repayment schedule. It is likely that this will result in a tariff
surcharge to cover costs. Distribution companies are increasing
their fee collection efforts.
Energy
demand forecasts
The Asian Development
Bank supported Master Plan will be available for review by the end
of 2002. The Interim report indicates that demand is scheduled to
increase at an annual average growth rate of 2.9 per cent between
2001 and 2020. This growth rate assumes improved efficiencies in
the operating power and heat systems as well as energy savings resulting
from conservation and energy efficiency measures. More detailed
forecasts are yet to be developed. Preliminary results indicate
that the total capital costs for the expansion of the central power
and heating systems will approximate US$870 million over the 20-year
period.
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