Rich in Resources but Powerless All the Same

ULAN BATOR — Few places on earth have as much energy resource wealth, or as much energy poverty, as Mongolia.
Energy experts say the cold, sparsely populated nation of 2.7 million possesses the largest coal reserves in the world, as yet largely untapped. And it has good conditions to produce wind and solar power.

But look around the capital and little of this abundance is on display. Built for 500,000, Ulan Bator is now home to between 1.5 million and 2.6 million people, and rural migration is driving the population up at a pace of about 5 percent a year.

Many of these new arrivals, and perhaps 60 percent of the city’s inhabitants, live in districts with no paved roads, sanitation or running water. Many are not connected to the electricity or district heating grids.

In winter, tent dwellers in Ulan Bator’s swelling informal settlements burn coal, wood, and cow dung to heat their tents, generating smoke so thick and black that residents say you cannot see to the other side of a crosswalk.

To provide cleaner energy and to rein in pollution require grappling with the problem at both ends — finding ways to offer clean, modern energy to people in the countryside, to stem the tide of migration, as well as to the new arrivals in the city. But the solutions are expensive, and time may be running out as environmental degradation worsens.

A study by Ulan Bator in 2007 showed a $2 billion investment would be needed over 15 years to provide clean energy and clear the air. The report recommended that households switch from raw coal to cleaner briquettes, which would also reduce fire risk, and use cleaner stoves — which would cut fuel use by 40 percent but cost as much as $60, double the price of standard models. It also recommended building well-insulated housing to encourage nomads to abandon their tents, known as gers.

But the city government has little room to maneuver. Unable to tap financial markets, it depends on the state for funding; and the state budget heavily depends on revenue from copper mining. Copper prices, although they have rebounded from the depths of last year, are not expected to rise much more for at least two years. Meanwhile, the economy is faltering. Unemployment is 13 percent and rising.

The national government is searching for ways to exploit clean renewable energies. It proposes to offer power companies a tariff subsidy of 8 to 12 cents a kilowatt-hour to sell energy from renewables. But it has not said where the money will come from, and until it does, the companies are unlikely to invest in new wind and solar generating capacity.

Some foreign energy companies are not waiting. In June, Daesung Group, of South Korea, inaugurated a hybrid photovoltaic and wind power demonstration plant on a windswept plain 50 kilometers, or 31 miles, southeast of Ulan Bator. The plant will drive pumps drawing water from three wells to irrigate an organic farming project.

“The Green Eco-Energy Park project is designed to address three needs at the same time: to provide water, food and energy,” Daesung’s chairman, David Kim, said at an inaugural ceremony. “These needs are interrelated. In this way, we can create a virtuous circle. It starts with energy.”

Daesung sees the project as a test of technology that could lead to the greening of Mongolia’s southern portion of the Gobi Desert — and beyond that, to the reclamation of other parched, energy-starved regions in, for example, Kazakhstan and Papua New Guinea.

‘Mongolia is a microcosm of the desertification and energy poverty we see all over the world,” Mr. Kim said.

Still, the project faces huge uncertainties, including doubts about the adequacy of the aquifer on which it draws and about the viability of an economic model that looks for added revenue from local developments, like an entertainment park and the revival of a former Soviet airport.

Efforts to improve and expand the country’s existing electricity infrastructure also face big obstacles. Mongolia’s five power plants and its transmission and distribution systems are physically dilapidated and financially unsound. The whole system is about $3 billion in debt, according to expert aid officials, who say about $1.8 billion is needed to keep pace with growing electricity demand and an additional $3.5 billion to rehabilitate transmission and distribution systems.

The cash flow of the power companies is weak and raising development capital through share sales is not an option. Analysts say tariffs need to double just to cover costs, and power theft is common.

Some government officials say Ulan Bator could face a shortage of electricity and heat as soon as next year. While the government has plans to build a sixth coal-fired combined heat and power plant, and the Asian Development Bank is helping the government prepare for a tender, analysts are not optimistic about its success, following a failed earlier attempt, unless tariffs are raised to cover costs fully and generate profits.

Still, a new competitive wholesale power market could be up and running as soon as next year; USAid, the U.S. international development agency, is starting a program to train officials to operate the market, which would encourage greater efficiency — in theory bearing down on generating costs and, by discouraging wasteful fuel use, reducing pollution.
At the same time, plans are going ahead to develop Mongolia’s coal reserves, estimated at 20 billion tons, including a billion tons of coking coal. China is close to signing a deal with Mongolia to build 6,800 megawatts of power generating capacity in the Nyala basin, a coal deposit in north-central Mongolia. Ulan Bator should ultimately benefit from 300 megawatts of this capacity, with the rest exporting power to China, although start-up is probably about five years away, according to foreign aid experts.

A dozen international companies are also competing to develop the Tavan Tolgoi coking coal deposit in the southern Gobi, though no decision is expected for several years, the experts said.

Foreign aid agencies have initiated some projects to start to address the problems. Japan’s international cooperation agency is monitoring air pollution, while the French government is supplying monitoring equipment; a German agency is building model housing units to improve heat insulation; and the European Bank for Reconstruction and Development is developing a supply chain for briquettes. The World Bank is investing in improved stoves.

The problems, though, will probably worsen as migration to the capital continues. The most recent household income survey in 2007 and 2008 showed that half of Mongolia’s rural residents lived in poverty.

In addition to seeking economic opportunity, the rural poor are moving to the city in search of better education for their children and better health care.

“The government has not paid enough attention to social and environmental problems,” said Balganjav Kuhldorj, head of the international relations department of Mongolia’s National University and an energy adviser to the Minister of Mineral Resources and Energy. “Even when the government ran a surplus in 2005 and 2006, they didn’t spend it on poverty and the environment.”

By SARAH J. WACHTER
Published: October 20, 2009 in New York Times Newspaper