Mongolia electricity single buyer(8)

SECTION II: CONCLUSION AND RECOMMENDATIONS

From the numerous discussions with power sector entities representatives it became obvious that implementation of the “Single Buyer Market” model played a positive role in the development of the national power system during difficult times.

It prevented the power system infrastructure from financial collapse and helped to maintain reliable operation of the power system by introducing financial stability to the power sector. However further movement toward privatization and introduction of competition into the power sector would require an introduction of market tools into the sector operation, such as bilateral contracts between distribution and generating companies, competitive bids in the spot market, participation of load serving entities in the spot market, etc. These developments can’t be supported within the framework of the current system. If distribution companies are to be privatized the “zero balance” accounts will have to be abandoned or at least to a large degree, modified. Investors in new generation like to have an opportunity to enter into bi-lateral contracts with buyers and receive direct payments specified in contractual terms. It is obvious that the current system is in need of changes. In our opinion the current system should be transformed to a system based on bi-lateral contracts between generation and distribution companies, supplemented by an orderly spot market, where both generation and distribution entities settle their deviation. In the beginning, bi-lateral contracts and the spot market could be based on regulated tariffs (two-part tariffs will have to be developed) and within several years gradually transition to a mostly competitive market.

Preparatory work needs to be done before the new system is implemented, i.e., examination of existing legal arrangements, introduction of two-part tariffs for generation, development of market rules and procedures, development of a standard contract for sale/purchase of electricity, training of NDC staff, upgrading NDC technical capabilities to control real time power system operation and to perform settlement and billing functions. A system of third-party financial guaranties would have to be developed. Alternatively some elements of the current cash management system may be employed as part of contractual arrangements.

There is no urgent need to rush a transition until all above listed milestones are accomplished. Only after market participants can demonstrate accountability, honor their contractual obligations and pursue disputes in accordance to existing regulations and laws should the new market model be implemented.