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“Mongolian Power- 2012 ” International Forum

Analysis of Mongolia's Single Buyer Model (SBM), cash flow regulation, revenue collection rate, and transition to a Bilateral Contract Market (BCM) for the power sector improvement. Insights by R. Ganjuur, President of Mongolian Association of Energy Engineers.

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“Mongolian Power- 2012 ” International Forum

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  1. “Mongolian Power-2012” International Forum The Model of the Mongolian Power Market /MPM/ and Issues for Improvement R.Ganjuur, President of the Mongolian Association of Energy Engineers Ulaanbaatar 2012.05. 16-17

  2. Today’s Model of the MPM • In the MPM Single Buyer Model was adopted September 1, 2002 and is valid until today. • In the activity of SBM involves 18 subjects: producers-5, transmitter/importer/operator-1,distributer/supplier-1,dispatcher-1. • According to the SBM 5 generating companies sell its electricity at regulated prices to the Single Buyer (Central Region Electricity Transmission Company),and Single Buyer sell purchased electricity 11 distribution companies. Distribution companies distribute and supply with electricity the end-users. • In Mongolian case, taking into account specific conditions the ERC approved the cash flow regulation as a main principle of the SBM.

  3. GenCo-1 GenCo-2 GenCo-3 GenCo-4 GenCo-5 Import SINGLE BUYER / Transmission Co / DisCo-1 DisCo-2 DisCo-3 DisCos-4…11 User User User User User User User User Single Buyer Model Scheme of electricity sell

  4. Cash flow regulation of SBM • Financial mechanism of this model is the method of revenue accounts with zero balance. • Transactions of the income account with zero balance is performed by a commercial bank which was chosen as operator on the basis of tendering. • Each state owned distribution company has a income special account. The cash flows from consumers are settled through the “zero balance” account of distribution companies. • From the “zero balance” account of distribution companies the cash flows are transferred to the “zero balance” revenue account of the Single Buyer. • From the “zero balance” revenue account of the Single Buyer the cash flows are transferred to the zero balance main revenue account of the Single Buyer and expense account of distribution companies.

  5. Cash flow regulation of SBM /cont’/ • From the zero balance main revenue account of the Single Buyer the cash flows are transferred to the producers and importer. • All consumer payments are directly deposited in the bank accounts of the distribution companies. These funds then are transferred the same day to the participants of the SB according to the formulas. • Thus, payment of electricity sold is carried out using automatic bank transfers. • Cash flow regulation by zero balance account is new idea in the power sector of transition countries where bill collection is low.

  6. Cash flow scheme of SBM

  7. Results of SBM • First time commercial transactions introduced in the power sector of Mongolia. • Since the SBM was introduced the revenue collection rate has improved from 76.5 % to more than100 %. • The mutual cancellation rate,i.e. the offsetting entries , have reduced from 40% to less than 10 %.

  8. Electricity Revenue Collection Rate

  9. Mutual cancellation rate /offsetting/

  10. Bilateral Contract Market/BCM/ • Initially the BCM will be governed by a system of regulated vesting contracts between generators and distributors. • The vesting contracts will be designed and approved by the ERA with tariffs based on costs. • The vesting contracts will be consistent with freely negotiated bilateral contracts which will replace vesting contracts as they are gradually phased out to introduce greater competition. • According to ERC study quantity of vesting contracts as follows : PP#2 and 1 distribution company PP#4 and 11 distribution companies PP#3 and 5 distribution companies DarkhanPP and 2 distribution companies Erdenet and 2 distribution companies Eastern Energy System and 1 distribution companies Importer and 1 distribution companies

  11. BCM Vesting

  12. Vesting of electricity • Electricity vesting will be determined by ERC on the basis of approved tariffs. • Energy tariffs:

  13. Diagram of electricity flow vesting

  14. Capacity vesting • Capacity vesting will be determined by ERC on the basis of approved tariffs. • Capacity tariffs:

  15. Diagram of capacity vesting

  16. The opinion of the main licensees regarding the replacement of SBM

  17. Conclusions • The next stage of the electricity market is bilateral contract market. • The first step of the transition to BCM is a system of regulated vesting contracts between generators and distributors. • Share holders meeting should issue the decision to introduce BCM. • I believe, ERC is making preparatory work for transitioning to BCM.

  18. THANK YOU VERY MUCH FOR YOUR ATTENTION

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