Sukhbaatar Ts.: Erdenet Mining Corporation is returning the favor of electricity support it received in the 1990s

During the pandemic, one of the government’s decisions to support people and companies was discount of the electricity and heating payment due until July 1, 2021. The interview was with Mr. Sukhbaatar Ts., the Chairman of the Mongolian Energy Association, about whether this was the right decision or not and how the energy sector has been operating during the pandemic.

–  Government has made several decisions to support people and businesses during the pandemic. The main support is discount of the electricity and heating payment due for several months. People are grateful to it. But how does this decision affect the energy sector? Do you think this decision and support provided by the government is appropriate?

– There is much information going on on television, social media and press about whether the decision was right or wrong.  Some people are criticizing it. However, from the customers’ side the payment of energy bill on behalf them is an appreciable decision for public. But the reasons and consequences of this decision must be clearly explained. First, public is misunderstood that the energy bill is free of charge. This is a completely wrong understanding.

Energy bill has not been free of charge or reduced. The government decided that the payment of energy bill some of customers will be paid from the profit of Erdenet Mining Corporation. For a person, who has been working in energy sector for 40 years, this solution was correct.

– On what basis do you think it is right?

– Firstly, in early 1990s Mongolian economy was in deeper crisis than the current situation. It was the time of the very initial stage of transition from the centrally planned socialist economy to a market economy. During this time, situation of the energy sector was difficult, it had curtailed the electricity supply for consumers about 2-3 hours per day according to planned schedule. Overcoming the cold winter season was really a heavy and risky burden. At the same time, world market price of copper fell down, and therefore, Erdenet Mining Corporation could not continue its normal operation.

During this uncertain period Mongolian government had taken certain measures to assure uninterrupted operation of Erdenet Mining Corporation and overcoming the crisis. Within the frame of this activity, it was decided to deliver the electricity for Erdenet Mining Corporation with specially reduced tariff within certain period.

Even though the decision was made by then government, it can be understood that every electricity customer from that period contributed to the implementation of this action to provide cheaper electricity to support Erdenet Mining Corporation. Therefore, I think that it is right time for Erdenet Mining Corporation to take the burden off the small and medium businesses, services and people who have been suffering during the deteriorated economic situation under the pandemic lockdown and repay the historically cheaper electricity support.

Secondly, energy price is not free of charge or discounted. It should be understood that Erdenet Mining Corporation is paying the electricity and heating bill on behalf of the customers. This has decreased household expenses and increased earnings of the customers. The business entities will receive certain benefit from this support and allocated financial sources should be used to cover their employee’s salary or to support their operation.

In the past, subsidies were given directly to power companies to cover their financial losses, but this time, subsidies given directly to the consumers and energy bill payment on behalf of them. This was an appropriate step to support the consumers.

Thirdly, there are many talks that the energy sector is operating with loss. If customers could not pay their electricity and heating bill during the crisis, it will increase the debts and receivables of the sector. Besides, it will enlarge financial gap, which will deteriorate the financial condition of the energy sector and it is going to be difficult to  operate normally. In the end, such condition will stagnate investments. With this decision, it has been establishing a condition to reduce the energy sector’s debts and receivables and to enable reliable operation to supply of electricity and heating to the customers.

–  So, is this enough to provide secure operation of the energy sector by the payments from Erdenet Mining Corporation?

– In recent years, gold and copper prices have risen much more than it’s been before.  This is good news. It will definitely have a positive effect on financial situation of the corporation, so we are confident that the payment will be transferred without any problems.

– Energy consumption is increasing year by year. On the other hand, it has always been discussed about the lack of installed capacity. There was a debate to build larger electricity sources, such as the TPP-5. What is the current situation of the energy sector?

– It seems that it is unable to cover peak load without importing electricity from Russia with the current installed central power grid capacity. For more than 30 years since the commencement of TPP-4, there was not constructed larger generation resources in Mongolia, but mostly there have been renovation and expansion of existing power plants. This upgrade and expansion will cover the current growth of basic consumption increase, but it will not be capable to cover further growth of consumption and there will have more deficiency of capacity. Therefore, it is required to build a large-scale power generation source immediately and urgently.

Currently, Oyu Tolgoi is importing electricity from China to provide its electricity need. This is an example of how a large amount of money is flowing out of Mongolia every year. For this reason, it is very important to build a larger power plant based on the Tavan Tolgoi coal mining resources. Recently, 220 kV Songino substation was built. It will able to transmit 220 kV power via Dundgobi to Umnugovi. Furthermore, if the power plant based on the Tavan Tolgoi coal mine becomes operational, it will have technical capacity to supply electricity to Oyu Tolgoi. If necessary, large amount of electricity can be transmitted to the central grid through Songino substation.

Many projects are being discussed, such as the Baganuur and Tsaidam Nuur coal-fired power plants and the construction of a power plant near Tugrug nuur to cover the growing energy demand in the central regional system. The most important one is to build Baganuur power plant. Large part of engineering work of the project is prepared and it has several advantages such as the location near to the coal mine, and close to 220 kV substation and water supply as well as nearness to the capital city. In near future, it is necessary to regulate the central grid load and to start building a pump storage hydroelectric plant. In addition, the construction of a large-capacity power transmission line connecting Mongolia horizontally, which interconnects the western and eastern regions, shall be built. It will create unified electric system, thus the entire power supply could be reliable and stable.

– Many projects discussed in the energy sector are still remain on paper. For example, fifth thermal power plant (TPP-5) project has been stopped?

– There were two main barriers on building the TPP-5. First, it took so much time discussing about the location, whether to build next to the TPP-3 or in the Khuliin Gol. Second, the global energy investment policy has changed. It was affected by the international financial institutions and developed countries who refuse to finance coal fired plants and reject coal burning. With this reason, participants of the consortium France, Japan and Korea became were unable to invest in the project.

In the future, the construction of large-scale thermal power plants in the capital city is becoming more complicated due to the increasing population density as well as the difficulty of land acquisition. There will also be issues such as how to transport large quantities of coal to Ulaanbaatar and how to clean smoke and remove ashes. Another key problem is water. Today, the capital city has shortage of resources to supply drinking water to a growing population out of supplying water to TPP. It is estimated that five power plants which are connected to the central energy system, are using 21 million tons of water per year. Therefore, it is better to follow the principle of building power plant near the coal mine and transmit electricity to the consumers. It is correct solution.

The government should support applying new technologies for heating. For example, a huge solar heat accumulator was established in Finland. Heat pump technology is improving and the investment cost is decreasing. These are technologies which produce thermal energy without emitting any greenhouse gas. Liquefied petroleum gas can be used for heating. With the latest available advanced technologies, which are becoming more efficient, it will be possible to solve the problem without building huge heating pipe lines.

– What is the current situation of our country’s energy sector development?

– One of the main goals of the Energy law of 2001 was to change the structure of energy sector, to define the boundaries of coal mine, electricity and heating distribution, electricity generators and electricity transmitters and to establish an accountability and responsibility between them. The restructuring goal was achieved in a short period. However, the other important goal of the energy sector was commercialization which is still not been achieved yet.

One of the reasons why new projects could not be implemented and investors are not coming in energy sector is because the energy price is being kept lower than its cost. To keep the low price, it has to keep the coal price lower than its value and coal is the major component of the heating and electricity production and low coal price caused huge amount of debt to the coal mines.

In addition, in order to keep the energy price lower the initial investment cost of existing power plants and grid networks not included and foreign loans, grants and government investments in recent years are not fully included in the cost estimates. These cause difficulties for normal operation of energy sector and large amount loan going further.

Due to country-wide cross-subsidy of energy prices, the government is taking heavy financial burden such as to allocate more funds from government budget, to spend grants from ODA and to pay the long-term debts for coal mines and energy sector entities. On the other hand, if energy price is forcibly kept lower by the majority owner, the government, it is difficult to imagine the private investments and the creation of a competitive market will be created in energy sector. These should be changed in the energy sector.

– How is the development of or renewable energy? For a while, there was a boom in renewable energy investment, but it has stopped now. What policy is being implemented? How does the future of renewable energy look like in our country?

– Countries agree that in the future, source of energy will be renewable energy by 2050, not nuclear energy, and they are investing huge amount of money in it every year. In our country, there are several renewable energy sources were constructed and commenced. Today, renewable energy tariff seems to be high. It was already mentioned whether the price of coal-fired energy is its real cost or not. There are some technological difficulties to use renewable energy fully. For example, when the consumption is high, there may be no sun light or enough wind speed and when consumption is low, there may be more sun light and enough wind speed. It means that we need larger scale hydropower plants and pump storage hydroelectric power stations to regulate this load demand. There was a plan to build a pump storage hydroelectric power plant in the 1990’s electrification master plan. This project needs to be implemented.

– There has been a talk about construction of Egiin gol hydropower plant as large scale regulation of power load?

– It is possible to implement the project with the cooperation among Russian investors who are interested to build Egiin gol hydropower plant. The russians have broad experience on building and operating many large hydropower plants in Siberian cold climate. They conducted detailed environmental impact study on Lake Baikal, and we believe that the results of the study will be positive and impact on Lake Baikal will be acceptable. And I believe we can take an action to build the plant.

– Why does Egiin gol hydropower plant necessary to Mongolia?

– During the winter heavy load, more than 200 MW electricity shall be imported through the interconnected transmission with Buryatia to cover the peak load. Imported electricity is not cheap. The application of Egiin gol hydropower plant will reduce the dependance of import and will improve energy stability. If there is failure a in the central grid and imported electricity interruption from Russia, the central grid has to have backup capacity to restore the grid. Currently relay protection is improving, but it is not 100 percent safe. Egiin gol hydropower plant can be that backup energy source for central energy system.