⚡ THE EVER EXPENSIVE RENEWABLES | COKING COAL | GROSS EXTERNAL DEBT

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Good morning! The Best Ever Food Review Show uploaded a second video on Mongolian traditional food. Go check it out. 😉

🤔 DID YOU KNOW?

⚡ THE EVER EXPENSIVE RENEWABLES, THEIR IMPLICATIONS

Despite all the rich energy resources, Mongolia faces a possibility of power outages in the coming winter. The energy sector is estimated to end the year with a debt of whopping ₮168.2 billion due to electricity prices artificially lowered to reduce the tariff burden on the population. Thus, the maintenance work required to keep the power plants running is expected to be financially problematic to carry out.

And amid the public’s fear of the looming cold with occasional electricity cuts, renewable energy companies humbly sit on their net profit of ₮50 billion accumulated over the last year. Upon this a question arises: why are renewables making profits instead of losses, unlike the rest of the energy sector?

Tariff advantages

The Law on Renewable Energy was first adopted in 2007 with highly favorable tariff conditions, setting the price range at $0.1-$0.15 per kWh for wind energy and $0.2-$0.3 - for solar energy. Although the law was later amended in 2019 and the tariff ranges were replaced by lower caps, most renewable energy agreements were already made before the amendment. Since the law doesn’t have retroactive effect, the initially agreed prices remain the same. Average tariffs per 1kWh at the time of the 2019 amendment in Mongolian tugrik:

• ₮153 - thermal plants

• ₮238 - wind farms

• ₮477 - solar plants

Dollar appreciation

In 2007, when the Law on Renewable Energy was passed, the ratio of the U.S. dollar relative to the Mongolian tugrik was $1 to ₮1,200, but the current exchange rate is about $1 to ₮3,235. Since the law and, consequently, power purchase agreements with renewable energy companies set out tariffs specified in USD, the cost of renewable energy is now almost 3 times higher than it initially was due to the appreciation of the American dollar.

Double-edged sword

As ironic as it may sound, renewable energy in Mongolia has a strange fate of both public ridicule and praise.

• On the one hand, renewables’ profitability was a great way of attracting foreign investment into the country and kickstarting the energy sector overall. There are now 18 renewable energy power plants in Mongolia with funding from major international companies, such as the EBRD, SoftBank Group Corp., Jica, ENGIE etc.

• On the other hand, renewable energy tariffs are now being highly criticized for not aligning with the market conditions at all - they are at least twice as expensive as the average electricity price.

In the end, the issue essentially comes down to the fact that Mongolia’s energy sector needs to transition to the next step of its development, be it with the help of policy adjustments or introduction of energy batteries.

📈 DATA STORY

Compared to the same period last year, Mongolia’s gross external debt increased by $271.5 million, reaching $33.3 billion in the first half of 2022. This increase was mainly driven by the Central Bank’s debt which grew by $244.7 million.

📱 FEATURING UNITEL EXPAT

5G: Mongolia enters the chat 😎

Unitel Group has successfully commissioned the test station of the new generation 5G network for the first time in the country. You can now surf the internet 10-100 times faster!

There’s a trick

Access to 5G is regulated by mobile phone manufacturers themselves. In the case of Mongolia, it’s Huawei that has enabled the new technology for its P40 phones in 14 different spots of Ulaanbaatar. So for now, as a customer of Unitel, you can connect to 5G only with Huawei’s 40, P40 Pro or P40 Plus phones. And remember…

It’s only a start 😉

⛏ COKING COAL

Coking coal prices in China have fallen sharply since June due to the drop in demand for steel and, consequently, coking coal amidst the continuous COVID-19 lockdowns.

Effect on Mongolia

Coal exports accounted for 53% of Mongolia’s exports to China in August, with an average of as much as 550 coal trucks crossing the border each day. Despite the increase in total exports to the southern neighbor, the rising prices for coking coal are starting to take a toll on Mongolia’s ability to maintain the positive trend in its foreign trade balance with China.

• 40% decrease: Prices for coking coal, which makes up the lion’s share of Mongolia’s coal exports, have decreased more than 40% since June, even dropping to ¥1,500-¥1,550 in certain cases.

• China's steel demand: All this was caused by the crisis in China’s real estate sector that led to a 14% YoY decline in steel demand in June, stalling production and pushing down prices for coking coal.

Already noticeable

The Mongolian Mining Corporation, the leader in coking coal production in the country, sold 900 thousand tons of metallurgical coal in the first half of this year, 12% more compared to the same period last year. However, the company’s losses soared 2.4 times, resulting in $32.3 million in total. Similarly, SouthGobi Resource posted a $5.8 million profit in the first half of 2021 and ended the first 6 months of 2022 with losses worth $17.8 million.

All depends on China

Europe's energy shortage caused by the Russia-Ukraine conflict is pushing up natural gas and coal prices in the European market, but it has not yet had a dramatic impact on Mongolia's coal industry, which is highly dependent on China. And considering that China’s steel production is unlikely to recover any time soon, it wouldn’t be completely wrong to say that Mongolia’s coking coal industry currently has a single factor of influence - the good old southern neighbor, China.

🏃‍♀️ QUICK STORIES

📌 Mongolia retains observer status in Shanghai Cooperation Organization. During the extended meeting of the Council of Leaders of the SCO on September 15, President U.Khurelsukh met with SCO Secretary-General and expressed interest in developing cooperation with the organization as an observer status.

📌 XacBank to receive $25 million support for green lending from EBRD and GCF. The financial package consists of the EBRD’s loan of up to $18.75 million and concessional financing of up to $6.25 million provided by the Green Climate Fund. Notably, XacBank is Mongolia’s most active creditor of green economy projects.

📌 Mongolia’s foreign trade balance posts surplus of $2.2 billion in first 8 months of 2022. Total trade turnover reached $13.4 billion, with exports hitting $7.8 billion. This means that Mongolia sold 38.7% more goods and services abroad compared to the same period last year. Notably, China accounted for 63.9% of total trade turnover.

📌 Sendly looks to raise ₮10.05 billion by offering 29.97% of shares to public. The company received The Financial Regulatory Commission’s approval to go public on August 10. The primary offering on the Mongolian Stock Exchange will take place on September 26-30 at a price of ₮150 per share.

🟦 TOP NEWS

1. Top Chinese legislator pays official goodwill visit to Mongolia. (Macau Business)

2. Mongolian president invites Kim Jong Un to visit whenever ‘comfortable’. (NK NEWS)

3. Uzbekistan to host Russia-China-Mongolia summit. (AKIpress)

4. Mongolia walks a tightrope on Ukraine. (East Asia Forum)

5. China gets coal lifeline before winter with Mongolia rail spur. (Mining)