By Jesse Brooks
In the last 33 years, Mongolia has regained its independence, held its first democratic elections and rapidly raced towards urbanization— and yet, the gas for this engine was left behind. While the country’s per capital energy consumption has more than doubled over the past twenty years, a major power plant has not been built since 1983. The reason? There are too many alternatives, too many solutions, and too many energy project proposals currently in consideration.
A perfect storm of energy consumption has culminated in steady growth in demand. The Ministry of Energy estimated demand for energy to have grown seven to 10 percent over the past few years. Family necessity to keep warm amid frigid winters has been coupled with massive booms in the mining and construction sectors.
People have been plugging in more and turning up the heat. Construction and mining companies require more juice for their large machinery. The supply and demand illuminates a very real and pressing need for more domestic energy capacity. But then why, for over 30 years, has the government continued to sit on its hands while over 60 energy projects idly remain in consideration? “There are countless, oft-cited factors impeding major projects,” explains William Danforth, an analyst at Mongolia International Capital Corporation—Mongolia’s first investment bank. “Ultimately though, the large pipeline actively hampers the development of strategically vital projects.”
The energy project pipeline has log jammed and stalled right before any tangible project. Imagine the pipeline as a crowd of impatient fans rushing toward the entrance of a theater, eager to get front row seats, only to bottleneck—blocking anybody from entering. “Yet, considering a large number of projects simultaneously increases the development process’s susceptibility to politicization,” Danforth points out.
Among the 60 viable project proposals active in the energy sector, many state politicians each have their own pet projects that they want to get funded. Concurrently, the politicians welcome sponsors who all try to exert influence and push their project to the front. Neither the state actors nor the projects can gain enough traction to get off the ground.
The country, simply put, has too many viable solutions to its burgeoning energy problem. And that’s the problem. Hence, the country’s current energy project paradox. “The annual savings from supplying domestic energy could exceed 60 million and 150 million USD respectively,” Danforth estimates. “In total, the theoretical maximum amount of savings could be as high as 2.4 billion USD, with approximately three-quarters of this reduction coming from substituting Chinese energy.”
The obvious benefits of a new major power plant underscore current frustration over the pipeline’s stagnation. In the 2012 election year, political leaders gifted many citizens a one-time cash payment of roughly 770 USD. In theory, the potential savings from a new major power plant would offset the mounting debt incurred from this brazen financial giveaway.
For the past 30 years, indecision has not only cost the country money, but also geopolitical leverage. Both families and large companies are increasingly draining the domestic energy barrel, forcing the government to import energy from Russia and China. Currently, 20 percent of Mongolia’s total annual consumption comes from its domineering neighbors, with percentages poised to rise to almost 32 percent by 2020.
“East Asian markets represent the future for Mongolia’s energy industry. Yet the current project pipeline misrepresents Mongolia’s priorities, overcompensating for the existing domestic capacity shortage. Mongolia has a bright future as an energy exporter,” Danforth says, discretely holding back a smile and looking up, “but it needs to unclog its overcrowded development pipeline.”
Central heating is not going to suddenly shut off, nor will children soon be walking home from school in the dark, but the country will continue to sink into electric debt to its bullish neighbors. The light bulb needs to be screwed in, but too many hands are clawing at the lamp.