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Energy and Infrastructure Issues

The Asian countries take various measures aiming to reducing carbon emission

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Part 2

How the Asian countries manage the energy trilemma (energy security, energy equity, and environmental sustainability) to face to the growing huge energy demand?

Currently coal plays a major role for a wide range of Asian countries, and nuclear remains an important solution for de-carbonization. According to McKinsey, the 5 countries where LNG imports increased the most during H1 of 2018 are all in Asia and all experienced LNG import volume increased of at least 12% year-on-year

The Asian countries take various measures aiming to reducing carbon emission and have invested in  the renewables energies, in energy storage and in E-vehicles.

National level

The current situation and the challenges on energy generation of some Asian countries will be described. The data of the World Energy Council are used.

Currently Chinese electricity generation is based on coal, oil and gas. In April 2015 China became the world’s largest oil importer and imported 356 million tons of oil, four times the import amount of the year 2000. The country is expected to become the world’s top LNG importer by 2030.

China’s 13th Five Year Plan for Economic and Social Development (2016-2020) includes a set of clean energy related objectives, with clear targets for energy consumption cap and a 15% goal for the share of nonfossil-based energy in the country’s primary energy mix.

In India over 80% of electricity generation is coal based. At the same time, India is also working to incorporate renewable energies into its supply mix. The country has a high renewable energy target 175 GW by 2022 and 275 GW by 2026-2027.

Japan continues to rebuild and rethink its energy plan post Fukushima. Of the 54 nuclear reactors that were either in operation or under construction in 2011, only five are currently in operation. Japan’s reliance on imported fossil fuel has increased to almost 90%. One of the main issues to be addressed in the near future will be the Japanese government’s concrete plan to rely on nuclear power to generate 20-22% of the country’s electricity by 2030.

In Malaysia 51% of electricity generation is entirely imported coal. The country is expecting big changes towards a much healthier, greener direction by 2030. Malaysia is well on its way to reaching the 50% Renewable Energy target by 2050, with current levels at 21.67% (7,271Mw). Malaysia has achieved about 33% reduction of carbon emission intensity per unit of GDP.

In Mongolia according to the Green development policy approved in 2014 renewables will account for 20 percent of its power capacity in 2020 and 30 percent by 2030. Mongolia’s renewable capacity nearly doubled in 2018, reaching 155 MW.

Regional and supra-regional level

a) Energy sector

In Asia there are a number of regional projects regarding energy and infrastructure, but we have selected only some of them.

Southeast Asian energy outlook

In the Southeast Asia with a total population of nearly 640 million, an estimated 65 million people remain without electricity.
Demand in the power sector in Southeast Asia countries is expected to tripling from 2013 to 2040. To this end the investments of USD 618 billion in generation and USD 690 billion in the transmission and distribution of power are needed. Southeast Asia remains an important producer of oil, gas and coal, but the domestic supply is decreasing and demand is increasing. Nevertheless these countries will have net imports of 6.9 mb/d of oil in 2040 require USD 280 billion in annual outlays by 2040. Apart from the mounting import bill, the region’s increasing dependence on imported energy raises significant energy security concerns.

The putting into place of the ASEAN Power Grid (APG), a flagship program set up in 1997 by the ASEAN Heads of States/ Governments, would help the regional economic growth and ensure regional energy security. The MOU of the APG was signed by Energy Ministers in July 2007.

By the mid-2020s the region as a whole turns into a net importer of gas. This situation has important implications for infrastructure development in the region. Various bilateral pipelines are in operation today, but an important task is integrating them into a harmonized regional pipeline network. The Trans-ASEAN Gas Pipeline project attempts to achieve this and could bring important energy security benefits for the region.

Northeast Asian Super grid

After the collapse of the Soviet Union in the early 1990s various proposals were suggested regarding oil, gas pipelines and power grid interconnections in Northeast Asia.

Russia and China initiated oil pipeline discussions in 1993. The Vostok gas pipeline was subject to the negotiation between Moscow and Seoul project in the early 1990s.

Regarding the power, the concept of the Asian Super Grid was announced in 2012 by Softbank CEO Son Masayoshi, a project of his Japan Renewable Energy Foundation (renamed as Renewable Energy Institute ), in the post-Fukushima shift in Japan toward renewable energy. Mongolia’s Gobi Desert would be the site of a giant wind farm that would feed a regional grid linking Mongolia with high voltage direct current (HVDC) transmission lines to Japan, South Korea, China and Russia.

At the September 2018 Eastern Economic Forum, Northeast Asian leaders from Russia, China, Japan, South Korea and Mongolia called for Northeast Asian regional energy cooperation but emphasized different priorities. Xi Jinping promoted the idea of transnational infrastructure and a regional energy regime. Japan and South Korea were interested in LNG from Russia which does not require cross-border infrastructure cooperation. Mongolia wanted a Russian gas pipeline that transited Mongolia to China. At this forum Mongolian President Khaltmaa Battulga called for starting construction on the North- East Asian Super Grid.

So currently it lacks a common understanding on how energy relations should be organized in Northeast Asia’s energy supply. Nevertheless, institutionalizing Northeast Asian Super grid continues to be a region-wide goal. During the April 2019 meeting with the Mongolian officials ESCAP expressed its intention to encourage the creation of the North East Asian Super Grid project.

b) Infrastructure sectors

Eurasian Initiative

In October 2013, South Korea proposed an ‘Eurasian Initiative’, designed to build geo-economic links that would start from Pusan to North Korea, then either through Russia or China to link up with Central Asia and Europe. The South Korea President expressed the hope that the Demilitarised Zone (DMZ) could be turned into a ‘Dream Making Zone’.

High-speed inter-continental link

Russia has a very ambitious plan to develop a high-speed inter-continental link between London and New York across Eurasia on land and through a proposed sea tunnel joining physically Siberia and Alaska. China has a similar plan to connect its rail lines to the Trans-Siberian Railway as part of the eventual London to New York route. This train line on earth is estimated to be 20,000km long.

Belt and road initiative (BRI)

Chinese national oil companies (NOCs), especially China National Petroleum Corp (CNPC) began going out in 1993 seeking oil and gas resources.

The going out strategy created four interconnected energy channels: the Kazakhstan-China oil pipeline, the Myanmar-China oil and gas pipelines, the Russia-China oil and gas pipelines, and the Central Asia-China gas pipeline. At present, Chinese NOCs have invested in equity oil and have purchased assets in the Middle East, North America, Latin America, Africa, and Asia. As it was noted by Gaye Christoffersen, these energy channels would become a basis for the economic corridors of BRI.

The Belt and Road Initiative (BRI) aims to strengthen infrastructure, trade, and investment links between China and some 65 other countries that account collectively for over 30 percent of global GDP, 62 percent of population, and 75 percent of known energy reserves. The BRI consists primarily of the Silk Road Economic Belt, and the New Maritime Silk Road. Six other economic corridors have been identified to link other countries to the Belt and the Road (BCIM economic corridor connecting Bangladesh, China, India, and Myanmar; China-Mongolia-Russia economic corridor; New Eurasian Continental Bridge;

China-Central Asia-West Asia economic corridor; China-Indochina economic corridor; and China-Pakistan economic corridor).

The BRI was ans is subject to a wide range of studies and comments, for this reason we will not stop on this issue any longer. Gerald Chan (University of Aukland) made the following synthesis relating to Asian countries responses related to the BRI:

China has played a leading role in launching the newly created financial organizations such as the New Development Bank (or the BRICS bank), the Asian Infrastructure Investment Bank, the Silk Road Fund, and Shanghai Cooperation Organisation’s Interbank Union.

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Construction of Tavantolgoi power plant to begin in 2020

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The Government of Mongolia and Oyu Tolgoi (OT) LLC have signed “Energy Regulatory Coordination” on 31 December 2018. According to the agreement, the construction of the Tavan Tolgoi power plant will start from March 2020 and be completed by 2023.

When the Tavan Tolgoi power plant with a capacity of 300 mWh commences, the power supply of OT will be improved along with the integrated power supply system of Mongolia. As of 2018, the OT mine project has paid approximately USD 150 million for generating electricity from Inner Mongolia's energy system annually. Tavan Tolgoi thermal power station will keep the invest in Mongolia. Furthermore, when the OT underground mine is commissioned, energy consumption will increase by 30-40 percent from current levels.

The plant will provide water from the Naiman valley and will use minimize water consumption via using an air cooling system for power plants. The Tavan Tolgoi power plant planned to use 1.2 million tons of coal annually and will use the thermal coal, which does not be exported and left at the  mines. The remaining coal will be in circulation in the economy, according to the spokesman.

Also, 200 permanent jobs will be created, following the increased housing and social buildings and improved urban development.

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World Bank report underscores importance of strong fiscal foundation

Mongolia’s capital expenditure has been among the highest in the world in 2010-2016

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According to the World Bank’s report on public expenditure, Mongolia’s over-expanded budget policy altered fiscal discipline. Therefore, the World Bank highlights the need for adequate fiscal resources by accumulating savings during economic growth.

“With high public debt, low tax rates and high exemptions, the Mongolian economy remains extremely vulnerable to external factors, including shifts in global demand, commodity prices, and exchange rate and interest rate shocks. There is a clear need to strengthen fiscal buffers through increased savings during years of prosperity,” said Andrei Mikhnev, World Bank Country Manager for Mongolia.

At an average of about 11 percent of GDP in 2010-2016, Mongolia’s capital expenditure has been among the highest in the world. However, the returns of this spending have been low due to poor project selection, long delays in implementation, high-cost overruns, and low maintenance budgets.

“The report lays out key actions the country can take to enhance the efficiency of public investment. Development and implementation of a national road map to improve the efficiency of these investments is the top priority,” said Jean-Pascal Nganou, Senior Country Economist and a lead author of the report.

Given Mongolia’s highly volatile revenue performance, the report also recommends reducing the dependence of government revenue on the mineral sector by embarking on a gradual reform of the tax system. This includes measures to increase low statutory tax rates, revise the number and size of tax exemptions, and broaden the tax base. The report illustrates that VAT and excise taxes in Mongolia are regressive in nature as their burden is larger among the poor than among the non-poor.

It also highlights special spending needs in health and education – key sectors that play an essential  role in the country’s long-term development and the fight against poverty.

The report highlights the urgent need to strengthen the pension system to meet the needs of Mongolia’s aging population. The government set the target for a maximum state subsidy for pensions of 2 percent of GDP by 2030. However, due to measures allowing many workers to purchase a pension for life at retirement age at a fraction of the cost that other workers have paid during their work lives, reducing herders’ retirement ages, and others, the current subsidy of 2 percent of GDP is projected to rise to 6 percent in 2030 and 11 percent in 2050 unless reforms are undertaken.

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World Bank: One in three people remain poor in Mongolia

Poverty rate fell by 1.2 percentage point since 2016

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The poverty rate in Mongolia, which was 29.6 percent in 2016, lowered to 28.4 percent in 2018, declining 1.2 percentage point. The National Statistical Office (NSO) biannually conducts the poverty indicators of Mongolia in cooperation with the World Bank. The two organizations have collaborated on poverty assessments through the Household Income and Expenditure Survey and the Living Standard Measurement Survey since 2002.

In 2018, the poverty gap was estimated at 7.2 percent, a decrease of 0.5 percentage points from 2016. Poverty severity has decreased to 2.7 percent from 2.9 percent in 2016. During the period between 2016 and 2018, the poverty rate declined by 4.1 percentage points in rural areas but increased by 0.1 percentage points in urban areas. While the poverty rate remains high in rural areas, with two-thirds of the total population of Mongolia living in urban cities, poverty has become more concentrated in urban areas. The percentage of the poor population in urban areas has increased from 62.1 percent to 63.5 percent in 2018. Also, more than 40 percent of the poor lived in Ulaanbaatar in 2018.

As of 2016, 29.6 percent of Mongolian citizens were living below the poverty line, indicating that one in three people or roughly one million people live in poverty. The rate, which was 21.6 percent in 2014, increased by 8 percent in 2016, showing 275,000 povertystruck people over this period.

The poverty line that indicates the amount of money required to provide the basic needs was MNT 146,000. In 2014, those who have moved above the line were back in poverty due to the negative impacts of the economy and society. The economy grew by 20 percent between 2012 and 2014, while the economy grew by 3.6 percent in 2015 and 2016. As a result of 2016, the GDP growth slowed by 1 percent. At the time, the deficit reached MNT 3.6 trillion due to the collapse of commodity markets in the world.



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World’s top innovation company leaders meet Mongolian innovators

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During the Innovation and Investment forum organized by the Parliament Speaker Zandanshatar Gombojav, the leaders of the world’s top innovation companies came and viewed Mongolia's innovation project and product launches. Participants in the forum exchanged views on how to exchange international experiences in order to strengthen startup firms and to support innovation products with banking and financial institutions.

Mr. Zandanshatar initiated the forum in May, after visiting academic institutions of some universities and the Mongolian Academy of Sciences to discuss innovative projects and products with competitiveness and seek solutions. The forum also intended to exchange experience in innovation projects and products successfully implemented in the market.

The Parliament Speaker highlighted in his opening speech, “According to the World Economic Forum in 2017, Mongolia is ranked 11th in the Global Human Capital Report by intellectual property, while ranking 111th in the knowledge of exported products out of 130 countries worldwide. This indicator shows that Mongolians have a high intellectual capacity, but we are left behind on using the knowledge and value-added products. The forum aimed to push the dissemination of innovation, as well as the possibility of involving scientists and private entrepreneurs to science-based development.”