April 1, 2010｜Mongolia
Representative Director, South Gobi Power Development Corporation
Spring comes to Mongolia too.
In Ulaanbaatar from March into April there are pleasant days during the daylight hours. My local close friends bemoan that the Ulaanbaatar of yesteryear was not so dusty. It was more verdant and lush. It is a developing town.
Spring of last year was a difficult period economically. The Mongolian economy also suffered the impact of the Lehman shock, and from the year before last when it had faced favorable economic conditions which were supported by the profits from resources such as copper and gold, they suffered a major setback. Funding of US$400 million (US$50 million from Japan) was contributed, centered on the IMF, and supported government finances.
It is held that in Ulaanbaatar last year, the number of housing units in condominiums on which construction work stopped was more than 3,500. This year it is thought that this construction work will proceed. As all the condominiums and apartment buildings become offerable for sale, however, the economy does not grow strong. Conversely, such an increase in housing construction brings a marked increase in the demand for electricity. The limit of the existing electricity-supply capacity is drawing close.
Winter this year was harsh. They say that there were several days when the temperature went below -45°C in Ulaanbaatar. It has been reported that nationwide 2 million head of livestock (out of a total of 40 million) froze to death.
The economy, however, has been recovering gradually since autumn last year. A major factor is that the price of copper has climbed over the US$6,000-per-tonne level. Positive factors, including the fall in interest rates, the increase in the amount of funds, and the fall in the inflation rate, are coming together. On the flip side the exchange rate has shifted to a level of 1,400 togrogs to the US dollar. This is an unsatisfactory level. It hasn’t returned to the level of 1,000–1,100 togrogs of the past few years.
Against this backdrop, the South Gobi resource development is taking concrete form.
Regarding the Oyuu Tolgoi copper and gold development project, the investment agreement concluded by the Mongolian government and Ivanhoe Mines Ltd. in October of last year came into effect in April this year, and the preparations are being completed for starting work on the mining and concentrating facilities.
The securing of rights to the Tavan Tolgoi coal mine has become the focus of attention from all over the world, and Japan also organized a public–private joint mission in March this year, and has entered into a genuine engagement with the Mongolian side.
Via the South Gobi resource development, the development in leaps and bounds of the Mongolian economy is seen as secure. Japanese private-sector investment in this development, including infrastructure projects, is the key to the future of the project.
Political challenges also remain, including the course of the railway project, and the system for projects (the sharing of roles between the government and private sector). The prompt improving of Mongolia’s systems is hoped for.
The increase in the population of Ulaanbaatar is remarkable. At the beginning of the 1990s it was approximately 300,000, but today it has swollen to 1,300,000. Over 500,000 are impoverished, living in gers. While the smog emitted from the chimneys of gers with the coming of spring is decreasing, the emissions from coal-fired power generation do not cease.
By making South Gobi the country’s energy-supply base, more time will be necessary until the rebirth of Ulaanbaatar as a clean and beautiful tourist city.