1. Energy Regulatory Authority (ERA) of Mongolia Mr.Tumentsogt Tsevegmid, MSc, MPA Regulator, Energy Regulatory Authority University Street 2A, Ulaanbaatar – 46 Mongolia E-mail: tumentsogt@era.energy.mntumentsogt@era.energy.mn Budapest, Hungary May 19, 2004 4 th Annual Meeting of the Energy Regulators Regional Association

2. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 2 Recent Government Actions Undertaken in Energy Sector  Energy Law adopted in 2001 Current Status of Restructuring  Unbundling  Corporatization  Commercialization  Privatization Independent Regulatory Body Main Result - Separation of Policy Implementation from Regulation, Regulation from Ownership

3. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 3 Creation of Independent Regulatory Body Energy Regulatory Authority (ERA)  Licensing  Tariff setting  Consumer Right Protection  Monitoring Main Result - Efficient Operators Could Enter the Market

4. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 4 The Government Resolution #140 approved the “Mongolia Sustainable Energy Sector Development Strategy Plan (2002-2010)” Main principles: Financial sustainability Restructuring Capacity building Energy access and affordability Energy conservation

5. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 5 Government Actions & Stakeholders Participation Framework for Private Sector Participation (regulatory, financial covenants, political support etc.) Improve efficiency of operations (reduction of losses, financial recovery) Renewable energy development framework Future Projects and Near term Plans(WB, USAID, etc.) Multidimensional approach with participation of all stakeholders

6. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 6 Privatization of State Owned Assets in Energy Sector In 2003 the Government of Mongolia privatized Baganuur heat only boiler (HOB), Nalaikh HOB, Darkhan Selenge Electricity Distribution Network (DSEDN) Company, and “Sharyn Gol” coal mine. For 2004 the Government of Mongolia plans to privatize Baganuur South East Region Electricity Distribution Network (BSERDN) Company, Power Plant #2, and start preparations to privatize Power Plant #3, the shares of “Baganuur” Coal Mine etc.

7. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 7 Main duties of the Energy Regulatory Authority (ERA):  issuance of the operational Licenses and monitor the compliance of the terms and requirements of the Licenses;  review and set up the energy tariffs;  keep an adequate balance between the rights and interests of licensees and consumers;  resolve disputes between licensees and consumers;  support a fair competition in energy sector.

8. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 8 Main Features of the Energy Regulatory Authority (ERA) of Mongolia  Energy Regulatory Authority is governed by the Regulatory Board consisting of three Regulators, which are appointed by Prime Minister of Mongolia for 2, 4 and 6 years;  Decisions Made by the Board by the majority based on the open voting system;  Budget Approved by the Cabinet and Consists of service fees and charges from Licensees:  Three Main Departments: Licensing, Pricing and Tariff, Legal Information and Administration;  Total Staff – 31 people

9. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 9 The Energy Sector before Transition:  Vertically Integrated Energy sector;  Energy Tariffs set by the State;  Energy Tariff was not Based on Cost of Service;  Prices and Tariffs were Influenced Substantially by Social and Political factors;  Most Energy Companies Operated with Losses;  Process of Tariff Setting was not Transparent;

10. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 10 The Law on Energy in 2001 provides following provisions in regard of tariff setting: -In accordance with the Law on Energy, the Energy Regulatory Authority (ERA) shall be responsible for the tariff setting process; -Tariff adjustment can be done semi-annually, when it is required; -ERA sets tariffs for energy entities as well as for end-users in transparent for public manner

11. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 11 Interim Tariff Methodology The Interim Tariff Methodology was developed based on the cost estimation and production of each Licensee using the “Rate of return” approach. Present Tariffs Cover Expenses, such as: - Operation and maintenance expense - Expense for Depreciation - Loan Terms - Return on investment

12. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 12 Near Term Planned Actions to Develop New Tariff Design:  Economic Regulation to Promote Efficiency;  Automatic Tariff Adjustment Mechanism;  Lifeline Tariffs to Mitigate Social Impact;  Regulatory Framework to Promote Private Sector Participation (PSP) (PPA, improved legislature, investor risk mitigation measures etc.);

13. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 13 Economic Regulation as a Modern Pricing System  Short Run Marginal Cost (SRMC) pricing for Generators (Capacity and Energy Charges);  Efficient Transmission and Distribution Charges;  Supply Charges;  End User Tariffs

14. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 14 Social Impact Mitigation & Lifeline Tariffs  30% of Population Live Below Poverty Level;  Outcomes of Poverty /theft, non payment, etc./;  Surveys on ATP and WTP;  Affordability and Equity;  Subsidies for Aimags;  Lifeline Tariffs for Low Income Consumers

15. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 15 Concept for Lifeline tariffs  Identification of low income people is a challenge /based on income, consumption etc/;  Consumption is still needs to measured;  Even Most Poor people use Electricity for their needs;  Retired, Invalid and disabled, Poor people fall in this category;  Basic needs set at 75 kWh per month /electric stove, refrigerator, TV, Iron, Lighting/

16. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 16 Single Buyer Model of the Central Electricity System to Settle the Energy and Cash flow Cash flowEnergy flow

17. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 17 Energy Balance of Single buyer Model (SBM) Revenue Collection and Allocation at Single Buyer Model (SBM) Exchange rate at Jan.18.2004 1 US$=1171 tug

18. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 18 To be implemented… I.Electricity Distributors purchase electricity from generators and pay the line utilization fee to the Transmitter. II.Large consumers purchase electricity from generators and pay the line utilization fee to transmitter and distributors.

19. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 19 THANK YOU