Mongolia Appoints ADB to Advise on PPP for Heating and Power Plant in Ulaanbaatar

ULAANBAATAR, MONGOLIA - The Mongolian Government today appointed the Asian Development Bank (ADB) to advise the government in structuring the 450-megawatt combined heat and power plant number 5 (CHP5) in Ulaanbaatar as a public-private partnership (PPP).

The CHP5 would help address the city's growing heating and energy demand and provide a steady supply to the capital where the government plans to retire old plants to reduce air pollution. If implemented, it would mark the largest private sector infrastructure project outside Mongolia's dominant mining sector.

Mongolia experiences extremely harsh winters, and Ulaanbaatar, where nearly half the country's population lives, is the coldest capital in the world. The city’s electricity and heating demand has been increasing by 5%-6% every year due to the influx of people from rural areas seeking employment.

Right now, residents of Ulaanbaatar rely on three coal-based plants for heating and electricity. Two of the plants have been operating for 40 years or more and the other for 26 years. Parts of the plants are nearing the end of their life and being old and inefficient, the plants cause severe air pollution especially during winter when they operate at full capacity.

"Having a modern, efficient power plant would promote Mongolia's economic development and improve Ulaanbaatar's air quality," "Building this with public and private sector expertise and funding would set an excellent precedent in the energy sector for both Mongolia and other parts of Asia-Pacific," said Shane Rosenthal, Principal Portfolio Management Specialist in ADB’s Mongolia Resident Mission. Mr. Rosenthal signed the advisory agreement today with Zorigt Dashdorj, Mongolia’s Minister of Resources and Energy and Sugar Dulam, Chairman of State Property Committee.

Under the agreement, ADB will assist the Government of Mongolia in structuring the transaction by preparing the draft tender and contractual documents to facilitate private sector financing of the planned CHP5 plant.

ADB is already helping Mongolia put in place the laws and other frameworks to support public-private partnerships. Funding approved in 2009 helped the country draft a Concession law which became effective on 1 March 2010 and to set up a public-private partnership unit within the government to help it engage in PPP projects. ADB has also financed a detailed feasibility assessment for the proposed CHP5 plant, laying substantial groundwork for the project.