T.Tserenpurev: Energy sector will become a sector, which contributes to state budget, but not the one, which depends on government subsidies

We interviewed Mr.Tserenpurev T., Director- General of Energy Policy Department, Ministry of Mineral Resources and Energy.

-How do you assess current status of energy sector?

-We are fulfilling our main obligations of supplying consumers with reliable supply of electricity and heating. On other hand, it is true that this sector will require new generation capacities, undertaking technical rehabilitation and improving economic capabilities. If we review technological state of our power plants we still operate the assets and equipment with technologies installed in 1960-70’s. Mongolians repair and drive “Excel” model of the car, production of which stopped since 1995. Already three new models of this car are on the market. As this sample, we are still operating and maintaining our power plants, which were in use more than 40-50 years. The thermal power plant No.4, the “youngest” of these plants is welcoming its 27th year since its commissioning in 1984.

As we can see from practice of developed countries in the world, it can be observed that they operate these power stations for about 30 years and then start to introduce new techniques and technologies. In our country due to financial and economic constraints such possibilities have been limited. However, we shouldn’t sitting with our hands crossed. Within Mongolia Integrated Power System Program we are working on this issue and we are taking concrete actions. For example, we are expanding capacity of thermal power plant in Darkhan by 30 MW, our domestic engineers in cooperation with Harbin steam works expanded capacity of 80 MW turbine of power plant No:4 up to 100 MW, and in total they have increased capacity of two turbines by 40 MW. On other hand, the “Energy Resource” LLC is putting into operation 18 MW capacity of power plant at Ukhaa Hudag, which will be scaled up in future. In addition, within the Government action program the Government and the relevant Ministerial authority made a decision to build a new power station based on the Mogoin gol coal deposit, to connect consumers of Zavkhan and Gobi-Altai aimags with reliable sources of energy and it’s becoming clear that additional 60 MW of power will be supplied with the approval of concession agreement. For example, at the Dalanzadgad power plant, which is poorly functioning and creates many difficulties in winter time, there will be initiated rehabilitation works to build new block of 3 MW capacity and boiler related works. These works will start this year and will be finalized by fall. Consequently, we are working in energy sector, and there are ongoing operations to increase capacity of existing power plants as much as we can afford and supply increasing demands for power. Here we should also mention hydro power plants. Currently, Durguun hydro power plant 12 MW, and Taishir hydro power plant 11 MW are being put into operation and supplying its customers with power.

-How do you see prospects of private sector entering into energy sector in recent years?

-Actually, even today we can see private sector involvement in energy sector. For example, the “Darkhan and Selenge electricity distribution network” company was privatized in 2003, and Sharyn gol coal Mine Company was privatized. The Law on Concessions adopted in February 2010 created favorable legal environment to increase private sector participation, especially, in regard to domestic and foreign investors. 16 concessions and privatizations in energy sector have been included in the list of concession projects approved by the Government. For instance, within this framework, the Mogoin Gol power station project is being implemented. Also projects for thermal power plant No.5 and Tavan Tolgoi power plant will be implemented within framework of the Law on Concessions. 

-Experts say  that there are many benefits with the increased private sector participation in energy sector. Could you elaborate this argument more in details?

-The benefits  can be expected  in terms of improved efficiency, management, labor force, and reduced operational costs. This will in turn provide economic incentives for reducing operational expenses. Actually, the Government maintains a policy of transferring wherever possible the burden of responsibilities from its shoulders to private sector. On other hand, this is an opportunity for private sector. Of course, the energy sector will not be given away to whoever expresses such a desire due to the fact that the consumers need to be provided with electricity and heating without disruptions. Such decision should be based on professional capacity, labor workforce, techniques and technologies, financial capability, and relevant experiences. This issue will be resolved by the joint decisions of the State Property Committee, relevant Ministerial authorizes, agencies and other organizations. Actually, it is time to stop putting everything on Government shoulders. However, power plants and electricity transmission grids of strategic importance will remain under state ownership.

-We can observe how private companies are establishing themselves in energy sector. For instance, the “Energy Resource” LLC is quickly building power plant and introducing a progressive technology suitable for Gobi region. On other hand, there are many people who criticize the Government of not making efforts other than rehabilitating its old energy assets of socialist times. Why the Government is not paying enough attention to introducing new technologies?

-It cannot be stated that the Government is not paying enough attention. It would be more appropriate  to say that financial conditions and opportunities were not created. There are financial constraints, which limit these efforts. For instance, in order to build a power plant of capacity of 100 MW there is a need for investments of US$ 100-150 million and previous Governments did not have such funding and economic resources. Of course, the 21st century brought new technologies into energy sector. There are already power plants which are more efficient and economical, consume less water, with fewer personnel and have higher capacity. For example, in Republic of Korea, China, and Japan only 200 people work at thermal power plants with the capacity of 600-1,200 MW, which is similar to our thermal power plant No.4. In comparison, 1,400 people work at thermal power plant No.4. In other words, with benefits of new techniques and technologies they are able to save on workers’ salary and welfare issues. Currently, we cannot afford to have 200 staff to operate thermal power plant No.4. Current technologies and operational procedures will not allow it. However, we should set goal of gradually, step-by-step, utilize our opportunities and build such efficient and economical supply of power. Our current activities aimed to direct our policies towards this goal. In short, old technologies have done their services, and have utilized their capacities in full. Therefore, we are organizing this forum to direct our attention towards the issues of introducing new technologies along with continuing to utilize our current establishments, and environmentally sound practices and benefits.

-Currently, we are entering the stage of rapid economic development, and there are discussions that we will reap the rewards of large-scale building and construction works.   Large-scale mining projects and “100,000 housing” program will be implemented. However, how it can move forward without electricity and heating?

-It is true that thermal power plant No.5 has been discussed since 2004. However, as I mentioned previously, this project has not implemented until today due to factors, such as Government’s financial constraints, and clarifications of requirement and demand for this power plant. In 2008 the competitive tender bid for CHP-5 was announced; however, the tender bid was cancelled due to the fact that only one company participated in the tender and the bid was not complied with the required documentations. Probably, due to lack of technical and economical feasibility study of this project, the participating companies could not submit well prepared bids for this project.
On other hand, the energy tariffs in Mongolia are lower than the global average. Some people say that no adequate conditions are created for investors to generate sufficient revenues to justify their investments. Therefore, it is necessary to gradually increase tariffs in order to create attractive conditions for investors.

In terms of power demand increase it started to increase since 2008. Only after signing of Oyu Tolgoi investment agreement it become certain that there will be a demand for power of 280 MW. Otherwise, the demand did not usually increase so sharply; it increased by average of about 3% per year. We could fully meet such demand growth with our current capacities. Implementation of 100,000 housing program intensified during the last two years.  Previously, we could fully supply for electricity and heating demands of 40 thousand household apartment program with currently installed capacities. However, this does not mean that we do not pay attention to issue of new sources of energy to meet future demand.

We  haven’t postponed development of power plant No.5. This project will be implemented in two stages. During first stage it is planned to commission about 450 MW in electric capacity and 600 GCal in heat by 2015. By the end of second stage in 2020, it is planned to come up with the electric capacity of 820 MW and 1100 GCal of heat.

-Government controls energy prices and tariffs. Our Northern neighbor Russia also periodically increased its tariffs and as of this year it has fully transformed into market principles. Can we conclude that within the Parliament resolution No.72 Mongolia will also make a transition in this direction to set tariffs independent from the Government intervention?

-Of course, this issue is directly connected with social issues, and only with the aim of not putting a burden on our consumers the Government tried to avoid from sharp increases of tariffs  for electricity and heat. On other hand, we are definitely faced with urgent need to resolve the issue of how to maintain  prices without putting pressure on our consumers and at the same time not failing the energy sector. Consequently, Parliament resolution No:72 passed on December of 2010 at the request of our Ministry and energy sector. According to this  resolution, electricity prices of households, whose consumption rate stands at 150 kWh per month, at previous levels, but subject to indexation , while  energy prices of industries, business entities and households, whose consumption is  higher, will be periodically increased according to market demands. By 2014 conditions and opportunities in energy sector to operate without incurring losses will be established. 

-Countries around the world are supporting and developing renewable energy as an environmentally friendly source of energy. What policies does Mongolia maintain in this regard?

-There is a national program on renewable sources of energy. In addition, we have adopted a Law on Renewable Energy in 2007. I already mentioned that within this framework large-scale hydro power plants have been built at Durgun and Taishir. Today more than 10 soums are supplied their energy demands with renewable energy sources. In 2007 through direct contracting some companies with no professional background have been selected to construct renewable energy systems in remote soums, which installed cheap and low quality equipments. There were a lot of instances when these systems did not function properly. These systems were not suitable for extreme continental climate of Mongolia and due to low technological standards they constantly broke down creating a misperception among local people that renewable energy is not possible to use.

Even some Parliament members shared the same views and criticism against renewable energy. Such situations created a negative perception about renewable energy in the society. However, the situation in reality is totally different. If professional companies with international expertise make correct analysis and studies then the renewable sources of energy can be reliable, with small operational expenses, and environmentally friendly sources of energy. It has benefits such as not requiring expenses on diesel fuel, coal, and gas, and no need for regular labor force to operate such systems. Therefore, renewable energy has become one of the energy developmental priorities of the world. International Renewable Energy Agency (IRENA) has been established last year, where more than 100 countries joined its membership. Mongolian Parliament has become one first 20 parliaments which supported this organization. 

-Many of energy sector employees “trait” to mining sector. Because of energy sector importance, what social and incentive policy measures are undertaken by your ministry?

-This is becoming a reality. Some directors of power plants complain that all good engineers are leaving for Omnogovi. Good welders, electricians and engineers trait because of higher salaries. We can’t legally prohibit them because they are making their own choice. In order to keep experienced technical personnel, engineers and technicians and importance of energy sector we need to increase salaries and resolve social issues. In regard