Resolution made to transfer energy sector to market principals

It has been around 20 years since Mongolia transited to market economy; however the energy sector did not make a transition to market economy. As a result, heating and electricity services continue to be provided at prices lower than production costs which leads to the sector to suffer permanent losses and rely on State subsidies.

On December 9, Parliament approved a draft resolution initiated by 12 MPs on actions for energy that aim to satisfy a condition for the energy sector to develop independently. Accordingly, for a period of transiting the energy sector to market relations, a policy will be adhered to until 2014 to reduce the burden on people and the State will be responsible for the discrepancy of heating and electricity prices as well as major parts of loans taken by this sector. It was decided to transfer energy companies to market principles starting in 2014.
Under the resolution, the price for households’ monthly average usage of 150 kilowatts will be stably retained
for over the next three years; and in case it goes over 150 kilowatts, the payment for over-use of electricity will be calculated according to real cost. Presently, there are more than 340,000 users in Mongolia, of which
64 percent consume electricity at about 150 kilowatts per month. Based on this data, the decision was made to protect users from price-ups. Concurrently, the resolution creates additional energy resources such as new power stations in Baganuur and Ulaanbaatar, and an upgrade to the capacity of Thermo Power Stations III and IV.

MPs resolved that long-term loans to the Baganuur and Shivee- Ovoo coal mines and State-run companies in the energy sector need to be estimated by loan rates at the time they first borrowed, and converted into Mongolian Togrogs to establish a new agreement from which government will pay for losses due to rate differences and estimate it as an investment in the sector, that an issue on recovering basic and interest payments of the long-term loan will be studied, and that old debts between energy companies and coal mines
should be closed and converted as a subsidy giving by the State to energy companies of the central region.
“As for the resolution, the State must support the energy sector to overcome difficulties, because the government often controlled prices of heating and electricity and brought the sector into difficult circumstance within past 20 years. This proposal was generally resolved. The energy sector has a foreign long-term loan worth over Tgs500 billion. It must recover the loan within 28 years and now pays over Tgs20 billion annually.
During past period, there has been much discrepancy in currency rates. Therefore, the government is responsible for this discrepancy. The discrepancy in the rate stands at 25 percent of the total loan. To calculate it in Tgs, it is more than Tgs100 billion. If the government did not resolve to bear this load, the discrepancy would have been included in the price of electricity resulting in users suffering much of the burden. Therefore, it was resolved to make an investment to this sector from the State within next three years to reduce the burden on people and organizations. It was decided to subsidize thermo power stations of the central region with Tgs15 billion each year,” said MP A. Tleikhan. An interesting suggestion submitted by an MP during the discussion of the resolution, was about making a policy to completely renew electricity lines of Ulaanbaatar gher residential area and zero a night tariff of electricity in the winter time.

MP L. Gantomor made this suggestion with deep meaning that transferring gher area households into use of electrical heating instead of burning coal will be best solution reduce smoke in Ulaanbaatar. The Economic Standing Committee did not support the suggestion; however, some MPs expressed their support and gave opinions during the plenary meeting of parliament. MP D. Enkhbat said that instead of alloting monthly Tgs21,000 to citizens, it should be transferred into electricity prices. “Mongolia needs to improve the lives of people with Mongolia’s wealth. It has a resource and it is coal. Along with exporting coked coal from the Tavan Tolgoi deposit to China, it is important to use it to be efficient domestically. Instead, cash allotments for citizens will not be effective to improve their lives and reduce poverty. Government intends to implement a housing program for 100,000 households in the near future, of which 80,000 will be constructed in Ulaanbaatar. However it will take a long time as well as there is not much space for construction. In order to combat air pollution in Ulaanbaatar, we need to transfer gher residential areas into electrical heating and increase gas consumption. It is dishonest for citizens living in gher areas to pay patch/recover heating prices for those who are living in apartments. In past periods, stations suffered a huge loss from heating; however, a certain part of the loss was absorbed from electricity prices that were paid by citizens in gher areas. It was a heavy burden for poor people.

Therefore, it will be a more effective step to think of a way to transfer gher areas to electrical heat instead of
alloting Tgs805 billion in 2011,” he said. Ts. Nyamdorj, MP and Minister of Justice and Internal Affairs, said
that authoritarian measures are needed to reduce the city’s polluted air and if we do not strictly ban importing
woods and coal into Ulaanbaatar, spending billions of Tgs to combat air pollution will be ineffective. He said.
“Two years ago, I took a helicopter flight over Ulaanbaatar and almost 90 percent of Ulaanbaatar’s territory
was gher areas and only 10 percent was apartment blocks. Gher citizens stay warm by burning wood and coal.

In this condition, we never get rid of smoke. To arrange this issue, we need to increase consumption of gas
and electricity and forbid the import of coal into Ulaanbaatar entirely. It is necessary to scrutinize the issue of
heating gher areas with electricity.” After these MPs expressed their positions, a poll was conducted. The
suggestion received supports from a quorum of MPs, and Parliament instructed Minerals and Energy Ministry to make an accurate study on transferring the electrical night tariff of home users to zero.

The parliamentary resolution also stated to transfer entities to a tariff of power. “A tariff of power is a standard being followed in the world’s energy sector. For instance, industries and entities establish agreements
with power stations on how much kilowatts of electricity they will be supplied with this year. However, they sometimes do not receive all the electricity stated in the agreement or use a surplus. It makes it difficult for energy production and causes coal mines to work at increased load. This year for instance, industries and entities did not complete the agreement for electricity and it caused Thermo Power Stations to use-up coal supplies earlier than planned. If a tariff of power is introduced, the responsibility of users will be heightened,” said MP A. Tleikhan. The resolution also stated a policy to privatize the energy sector. For instance, Thermo Power Station III and Erdenet’s Thermo Power Station will be privatized under the Concession Law and Ulaanbaatar’s and other thermo power stations will be privatized under auction. Power Station IV will be also privatized.

Certain parts of Baganuur and Shivee- Ovoo mines will be privatized. By doing so, it is believed that management will improve and reduce the financial load that government bears.