Battle to meet energy needs for residents and industry in Mongolia

T. Nasan-Ish, 50, has just returned from a community meeting in Khanbogd in Mongolia's south Gobi desert. "We have exciting news", he says. "We're expecting to get unlimited electricity in the coming 40 days".

Nasan-Ish, a local retailer, has reason to be excited. A small, impoverished town, Khanbogd's citizens are used to daily blackouts - despite big international mining projects in the region.

"Blackouts usually start at 5pm for one or two hours, but during the daytime we mostly have power," he says.

The locals don't have access to the country's central heating system, instead using traditional coal-fired stoves to stay warm in the winter months - which can see temperatures drop as low as minus 40 degrees Celsius.

Mongolia, also known as "mine-golia" because of its vast untapped mineral wealth, is undergoing rapid growth. The Central Asian country's rich mineral resources including coal, gold, copper and rare earths is transforming the traditionally nomadic country into an economic powerhouse - last year, Mongolia's GDP growth was a staggering 17.2 per cent.

But the country's infrastructure is poor, including basic energy requirements to fuel the country's development.

In the capital Ulan Bator, coal-fired power plants built during the Soviet era are all connected to the Central Energy System, providing heating and electricity for residents. But it can't meet the daily energy capacity during peak morning and evening times, and electricity has to be imported from Russia.

With limited domestic fuel resources, the former Soviet satellite is also almost 100 per cent dependent on her former "big brother" for imports of petroleum products.

With house construction on the rise, greater use of electrical appliances and huge growth in car sales, the government is under increasing pressure to meet the energy demands of its citizens. The energy consumption of big mineral projects is adding to the cash-strapped government's woes.

"Dependency on Russia for oil products, and the Central Energy System's frequency regulation dependency are the two main factors impacting on Mongolia's energy independence", says Dr G. Yondongombo from the National Society for the Development of Energy Industry. "A third factor has emerged, however, and that is the deficit of energy production and supply to domestic needs."

Forty kilometres from Khanbogd is miner Rio Tinto's US$6 billion gold and copper project, Oyu Tolgoi. The mine alone requires 450 MW - a huge proportion given Mongolia's entire generating capacity is 850 MW.

Infrastructure shortcomings forced the company into negotiations with China to supply electricity to the mine for its 2013 start date, a deal cemented this month according to company spokesman Burenbayar Chanrav.

Importing electricity from China is only a short-term fix while the company builds an onsite power plant.

For the locals, unlimited electricity can't come soon enough.

"Our situation is getting better", says Nasan-Ish. "The soum [district] chairman told us because of the deal with China, we'll soon have power all day long".

While locals in the south Gobi keep enthusiasm for unlimited electricity high, Ulan Bator's leaders are battling with their fuel dependency on Russia.

The capital is planning to build an oil refinery in an effort to meet domestic demand and reduce reliance on Russia but this may not be the best solution, according to industry experts.

The country is well endowed with coal resources, which must be exploited in order to enhance energy independence, says Yondongombo.

"The most prospective and efficient solution to domestic oil product needs is the exploitation of coal-bed methane and production of liquid fuel from oil shale via in-situ technology", he says. "We have international investors looking to take part in developing these new industries but the political situation is complicated", he says. "We are experiencing progress since the formation of the new government".

This year, the newly elected government signed a memorandum of understanding with Germany's ThyssenKrupp Uhde to build a coal-to-liquid plant.

Cautious optimism prevails in the Gobi. "Some of the herders are better off than us town folk. They even have fridges and TVs", says Nasan-Ish.

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