Small-scale Technical Assistance for Developing a Computable General Equilibrium Modeling Framework for Analyzing the Impacts of Power Trading Between Mongolia and the People's Republic of China
Regional cooperation and integration is a high priority for Asian Development Bank (ADB), and the strategy for Mongolia includes assistance for stable broad-based economic growth by diversifying the sources and geographical distribution of growth, and stabilizing export earnings.
The same thrust on regional integration is underway, for instance, with the construction under the Western Regional Road Corridor Development Project?Phase 1 to increase market integration in western Mongolia and to link road systems in the Russian Federation to those in the People?s Republic of China (PRC). Similar ongoing projects that could have impact on economic integration are in activities like renewable energy, greenhouse gas abatement, and mitigation of air pollution from coal-fired power plants. Meanwhile, as demand for commodities like coal soars, the Government of Mongolia is considering export of energy resources to the PRC to meet its increasing demand that is fueled by rapid economic growth. The mineral resource boom, if effectively managed, could provide Mongolia with an opportunity to address a wide range of the country?s economic problems. In 2006, the mining sector contributed 18% to gross domestic product (GDP) and 76% of the value of export. Exploration activities have identified several new mineral projects, including: Oyu Tolgoi (copper and gold), Tavan Tolgoi (coal), Tsagaan Suvraga (copper and molybdenum), Tumurtei (iron ore), and Ulaan (lead and zinc).
Recently, because of the relatively small size of Mongolian economy, investment for mine development cannot be justified by the domestic demand, nor can Mongolia bear all the demand risk and price volatility of the export market. The development of export-oriented projects is held back because of poor infrastructure (namely, transport, communications and power); and public sector investment is unsustainable because of the extremely low population density (about 0.5 people per square kilometer in southern Mongolia).
The very large mineral and energy markets in the PRC offer a good opportunity to investors to develop the power resources in Mongolia for export. This is reflected in the direct foreign investments and large commercial interest of international mining companies to develop the mines in southern Mongolia. Though the government will benefit from the revenue stream of taxes and royalty, the trade-off would be the transfer of resources because of the foreign ownership of the projects. The estimated cost of some indicative projects are considerably larger than the capacity of the Government of Mongolia, for example, (i) implementation of a clean coal, zero-emission power project to replace the aging combined heat and power plant in Ulaanbaatar.
The same thrust on regional integration is underway, for instance, with the construction under the Western Regional Road Corridor Development Project?Phase 1 to increase market integration in western Mongolia and to link road systems in the Russian Federation to those in the People?s Republic of China (PRC). Similar ongoing projects that could have impact on economic integration are in activities like renewable energy, greenhouse gas abatement, and mitigation of air pollution from coal-fired power plants. Meanwhile, as demand for commodities like coal soars, the Government of Mongolia is considering export of energy resources to the PRC to meet its increasing demand that is fueled by rapid economic growth. The mineral resource boom, if effectively managed, could provide Mongolia with an opportunity to address a wide range of the country?s economic problems. In 2006, the mining sector contributed 18% to gross domestic product (GDP) and 76% of the value of export. Exploration activities have identified several new mineral projects, including: Oyu Tolgoi (copper and gold), Tavan Tolgoi (coal), Tsagaan Suvraga (copper and molybdenum), Tumurtei (iron ore), and Ulaan (lead and zinc).
Recently, because of the relatively small size of Mongolian economy, investment for mine development cannot be justified by the domestic demand, nor can Mongolia bear all the demand risk and price volatility of the export market. The development of export-oriented projects is held back because of poor infrastructure (namely, transport, communications and power); and public sector investment is unsustainable because of the extremely low population density (about 0.5 people per square kilometer in southern Mongolia).
The very large mineral and energy markets in the PRC offer a good opportunity to investors to develop the power resources in Mongolia for export. This is reflected in the direct foreign investments and large commercial interest of international mining companies to develop the mines in southern Mongolia. Though the government will benefit from the revenue stream of taxes and royalty, the trade-off would be the transfer of resources because of the foreign ownership of the projects. The estimated cost of some indicative projects are considerably larger than the capacity of the Government of Mongolia, for example, (i) implementation of a clean coal, zero-emission power project to replace the aging combined heat and power plant in Ulaanbaatar.
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