Shuren Hydro-Electric Station

Development Project

Mongolia is expected to enjoy high levels of sustained economic growth over the coming decade due to its rapidly developing mining sector. The rising demand for new sources of energy heavily outweighs current supply, creating the need for a reliable and sustainable domestic energy supply. Mongolia has a hydropower potential of 56000 GWh per year but has only harnessed one percent (75 GWh) of this potential. This obvious void has created the possibility for a high impact investment with considerable growth potential.

After the recent success of a hydroelectric pilot project, the Mongolian Government has given highest priority status to the development of a large-scale hydropower facility on Mongolia's largest river, the Selenge. The proposed project will provide solutions to a long list of socioeconomic and environmental issues by satisfying long-term peak load demand, reducing hazardous pollution levels, reducing dependence on high cost Russian energy imports and creating energy security and independence.

The ongoing development of large scale mining projects over the next decade will create enormous demand for electricity, which cannot be met by existing supply. Mongolia currently imports high cost energy from Russia to cover its peak capacity consumption, a dependence that will only increase with the growth in mining. Currently, Mongolia's energy sector consists almost exclusively of coal-fired thermal power plants, which have contributed to high levels of air pollution in the capital city of Ulaanbaatar and created a potential health risk for over 1 million people, effectively one third of Mongolia's population. Desertification due to climate change poses another considerable risk, with local warming reaching 2.0 degrees, 3 times the global average. It is therefore imperative that Mongolia develop a secure and sustainable mix of domestic energy sources to cover rising demand, reduce air pollution and carbon emissions and reduce dependence on Russia.

The Shuren Hydropower project represents a near perfect solution to Mongolia's energy needs and will be a major step towards sustainable socieconomic development. The project will reduce greenhouse gas emissions by 700,000 tons per year and generate energy that is infinitely renewable, clean and domestically supplied. In addition, the the facility will provide water storage, energy storage and flood and drought mitigation. DBM has been entrusted with the responsibility of financing the project and is currently reaching out to investors.

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Mongolian Sandwich

Being a landlocked country between Russia and China is a huge disadvantage for Mongolia.  Chinese and Russian influences are growing, sparking concerns among investors and the Mongolian people.  The Chinese already dominate Mongolia's exports, having bought 90 percent of Mongolia's exports in the first half of 2012.  According to Mine Web, Mongolia needs to expand its trade with China in order to ease its long-term dependence.

Dependence on Russia and China also poses a risk to the mining sector.  Mongolian mines rely on Russian and Chinese fuel, power and transportation to operate.  If a major disruption occurs in Russia or China, then Mongolian mines could shut down.  Furthermore, if Mongolia wants to export to other countries like South Korea or Japan it must rely on Chinese and Russian transportation.  In theory, Russia and China could coordinate their policies by limiting Mongolia's access to their railway networks in order to keep the Mongolian extraction economy under Russian and Chinese control.

Corruption is also a major issue.  Chinese and Russian businesses are viewed as some of the most corrupt in the world.  With their increasingly overbearing influence in Mongolia, it is not unlikely that corruption could spill across the boarder and into the Mongolian economy.

For these reasons, the Mongolian government has pursued a third neighbor policy, trying to build strong relationships with Japan, South Korea and the US.  In July, the government rejected a proposal that gave the development rights of the Tavan Tolgoi coal project over to Shenhua of China, Peabody of the United States and a Russian-Mongolian consortium.  The government is now trying to devise new deal that would include Japanese and South Korean partners.  This move, though disruptive to the launch schedule of TT, will probably pay off in the long term by promoting economic relationships with fellow democratic market economies in the region.