The long-term industrial development plans of Mongolia driven by natural resources should accommodate the exponential growth in demand for energy. However, the energy sector has been experiencing and suffering funding gap for further development. It is estimated that Mongolia will need US$8billion to US$10billion in investments in the next decade or so to unlock its potential in energy sector. It is further anticipated that over 80% of this funding is to come from private investors. To this end, foreign capital investment into energy assets and companies has been permitted by Mongolia’s energy regulations. Incentives for providing opportunities for and encouragement of investments include tenders; guaranteed tariffs for renewable energy (not yet implemented); long-term agreements on purchase of energy; or a combination of all these options.
The regulatory environment has seen a major boost in 2015 with the adoption by the Mongolian Parliament of (i) the State Policy on Energy and (ii) amendments to key energy laws of Mongolia.
The State Policy on Energy’s mission is to ensure uninterrupted and reliable supply of energy to meet the increasing energy demands of Mongolia and to transform the place into an energy exporting country in the long run. The amendments to the Law on Energy and to the Law on Renewable Energy have introduced important concepts such as “independent power producer” (in order to further foster the private investment and participation in the industry), “methane gas” as a type of permitted and regulated energy, “support (or green) tariff” to help subsidised renewable energy generation. The amendments also introduce the single-buyer model (aka cash sweep model) to further clarify the roles and responsibilities of the National Dispatch Center and other relevant government agencies to improve their coordination in regulating the energy sector.
Also in 2015, the Mongolian Parliament has decided to sell minority stakes in several state-owned energy companies.
Specifically, five CHPs – “CHP No.2”, “CHP No.3”, “CHP No.4”, “Darkhan CHP” and “Erdenet CHP” – are to be partially privatized in 2016. In addition, two majority-state-owned coal mines – Baganuur Mine and Shivee Ovoo Mine – are similarly expected to reduce their state participation within 2016.
In the area of oil & gas, following the Law on Petroleum (2014) several regulations have been issued by the Government in 2014 and 2015. These regulations, for instance, enable exploration and production of new energy sources, such as oil shale.
We acted as Asian Development Bank’s local counsel in advising the Government of Mongolia in negotiating Combined Heat & Power Plant No.5 of Ulaanbaatar, which is expected to become Mongolia’s largest energy PPP.
In addition, in 2015-2018 we have been appointed to advise on member of other new energy projects in Mongolia – both conventional and renewable projects.
The combination of the firm’s experiences in project finance, PPP and natural resources well positions our lawyers to advice clients on power related legal framework and policy approach of the Government of Mongolia.