The basis of a country’s development is electricity. We can even change Lenin’s famous quote into “Capitalism is democracy plus the electrification of the whole country”.
But then, why is 30 percent of the population of Mongolia still not connected to electricity in the 21st century? Why are people in the suburbs of Ulaanbaatar still living with candles? How can we carry out a complete electrification of the whole country? Shortage of electricity has real and unreal reasons.
Providing electricity and building roads to every corner of a country like Mongolia with a population of less than three million and a vast territory will cost too much. This is a real reason. There are also unreal reasons that depend on electricity supply of Ulaanbaatar and effectiveness of an individual’s performance. The Energy Regulatory Authority is in charge of energy generation, transmission, distribution and supply.
This organization also issues operational licenses, reviews and approves tariffs of licensees, protects the equal rights of the consumers and licensees and creates condition for fair competition among the generators and suppliers. One of the greatest challenges of those businesses that are preparing to operate in this sector is getting the relevant license from these networks in charge of distributing heat and electricity.

No new source of electricity or heat was built in Ulaanbaatar for last 30 years. The extension of transmission and distribution network is not able to keep up with the expansion of the city. Connecting to electricity and heat network is the second most secret business in Mongolia behind land deals. Ulaanbaatar Electricity Distribution Network Company has currently received more than 2000 requests regarding electricity, but they still have not been fully answered.
The main reason why no new sources are being built is that Mongolia is one of the few countries that distributes electricity and heat with a price 20-30 percent lower than its original cost. Cost of electricity is 6.5 cents per one kilowatt in Russia, 10 cents in South Korea, 13 cents in the United States and 23 cents in the Philippines. It costs MNT 114 in Mongolia, which means 9.4 cents by today’s exchange rates. However, because of a new, lower price that has recently been set, households are paying MNT 84 for one kilowatt while industries and businesses are paying MNT 88. The difference in cost is being paid by tax payers’ money.
Claiming that people are poor and have weak purchasing power, Mongolia keeps household electricity price lower than the price that businesses pay. However, it is a common practice in highly-developed countries that households pay the greatest electricity price and payments are guaranteed and on time. On the contrary, a lower price is set for businesses and industrial customers. Two questions arise when cost exceeds its price. Is the calculation of electricity cost in Mongolia realistic enough? We need to have professional, international organizations examine why our coal is very expensive even though the mine is next to us and what exactly the final cost of producing electricity is. Also, we need to make that information available to the public.
Anyways, even though they are having a deficit of 20-30 percent, administration of these coal mines, power stations and electricity distribution networks are living a life of luxury and the press is writing about it just enough. The other question is why they are supplying electricity to businesses with a price that is lower than its cost. The reason is that there is a government monopoly supplying electricity with a price that is lower than its cost and market regulation is replaced by government regulation. There cannot be any accumulation when there is deficit. Therefore, additional sources of energy cannot be built in time.
Foundation stone of the desperately needed new source of energy was laid in Uliastai valley in Ulaanbaatar three years ago. Then, it has recently been decided that it should be built on the grounds of Power Station III. It might be a choice with the least cost, but it gives an impression that, when a big, important project like this one is on the table, the government might just not do enough calculations and researches or work under someone’s pressure. Nowadays, USD 1.5 million is per megawatt cost of constructing a thermal power station, which means USD 1.3 billion will be needed in order to build a thermal power station of 820 megawatts.
This money has been in the waiting list of the government budget for 20 years. Ten percent of our labor force is currently unemployed and salary of those who have jobs is extremely low. That is why majority of people are living in ger districts and cannot even pay for their “on-sale” electricity. Lower labor productivity means lower salary and we cannot achieve higher productivity without new equipments and reliable electricity supply. In order to get heat and electricity out of this vicious circle, government monopoly in electric power should be removed and participation of private sector needs to be enhanced. Furthermore, energy regulation has to be restricted, customers have to be given choices and they must be provided with reliable electricity.

Translated by В.Amar