N. Ariuntuya of Energy Insight spoke with lawyer Mary Louise Vitelli, an expert with over 30 years of experience advising transitional countries on electricity, energy, mining, and related resource management. Specializing in improving the legal framework for sectors such as electricity, coal, oil, natural gas, geothermal energy, and mining, she offers comprehensive expertise on all aspects of energy generation, transmission, distribution, and the exploration and exploitation of natural resources. In recent years, Ms. Vitelli has focused on the intersection of the mining and energy sectors. She is a policy and legal advisor to the Mongolia Energy Governance Project, supported by the United States Agency for International Development (USAID). As Mongolia announces plans to reform and liberalize its energy sector, it is valuable to hear insights from an experienced lawyer who has worked and provided consulting services in over 50 countries, offering a unique perspective on Mongolia's energy reform.

You are an experienced attorney who specializes in energy and mining reform. Could you introduce yourself and share your experience in energy, particularly energy reform, both internationally and in Mongolia?

Sure, I am a US attorney and have, for more than 30 years, been privileged to work throughout more than 50 transition economies with emphasis on legal, institutional and governance improvements to support improved energy access, affordability and energy transition. My work is with public and private sector clients and includes legislative drafting, policy and strategy, licensing, contracts, governance and institutional reform. My first work experience in Mongolia was February 2013 when, for more than two years, I worked with colleagues to prepare the national mining policy and strategy. Following tremendous mineral development and boost in revenues generated from mining in Mongolia, this work provided legal and policy assistance to government challenged with reining in investments that were either not being developed, mismanaged or otherwise not performing. We worked to strengthen royalty schemes, licensing requirements, energy access, export rules, environmental reporting and development of infrastructure including electricity and transport. Since January 2023 I have served as policy/ legal advisor to the USAID funded Mongolia Energy Governance (MEG) activity, working with Mongolian government, industry and civil society to identify and facilitate institutional and legislative improvements to support energy transition priorities including optimization energy and infrastructure operations and establishing legal and institutional frameworks for strengthened energy sector operations, a competitive energy market and strengthened power purchase agreements.

Based on your assessment, what conclusions have you drawn about the current state of Mongolia's energy sector?

Foundational policy and legislation is in place to guide electricity and heating supply in Mongolia; this includes the 2001 Law on Energy, the 2007 Renewable Energy Law and the 2015 Energy Conservation Law as well as the 2050 Energy Vision that commits Mongolia to significant increase in renewable energy (RE) generation. The institutional governance framework in which sector operations are conducted includes the Ministry of Energy(MOE) and upwards of 20 state owned companies / utilities (SOEs) that implement generation, transmission and distribution. The Energy Regulatory Commission (ERC) was established in 2001although its operations are not fully independent of the MOE. In addition, an array of ministerial and government agencies regulate sector-related aspects including land, fiscal, investment, labor, environment, and more. The citizens of Mongolia are benefiting from almost 100% electrification, even if not at a 24/7 rate. Electricity costs are very low as the tariff has not yet been reformed to cover operational costs. The current market structure may be reformed to introduce new approaches to power generation and supply so as to relieve the nation’s electricity grids.

From your perspective, who are the stakeholders in Mongolia's energy reform, and what contributions do they make to the reform process.

All citizens are stakeholders in Mongolia’s energy reform; governance improvements are undertaken by the Ministry of Energy and the new National Energy Reform Committee and Parliament’s energy reform activities are contributing to facilitating necessary reform measures for improved efficiency and investments in the sector. As with any reform process, political will and government leadership are essential to ensuring reform strategies can take shape and have benefical impact for citizens.

What is the optimal time frame to carry out energy reform?

Energy reforms are forever ongoing, they typically occur in phases that may be somewhat time-based. For example, “unbundling” of a vertical utility structure to be separated out into distinct utilities/companies for generation, transmission and distribution. Tariff reform is another facet of energy reforms that typically is implemented over time and continues to evolve as the energy market evolves.

Is there a “classical” roadmap for energy reform? If there is, how can we formulate it?

It’s hard to say that there is a “classic” roadmap for energy reform but there are some fundamental measures that nations typically consider when embarking toward more open and competitive energy markets. These measures include institutional reform to ensure clear authorities and reduced discretionary decision-making, unbundling segments of energy operations (e.g., generation, transmission, distribution), reduced commercial and technical losses, tariff reform, rigorous reporting and transparency requirements, legislative strengtheing, the introduction/attraction of private invdestment and requiring state-owned operations to perform on par with private investments. A global shift toward energy transition to reduce emissions and improve energy access has become an inherent part of energy reform in most jurisdictions.

What preparations does our country need to make before carrying out the reform? What are the necessary steps to be taken during the preparatory phase?

The recent establishment of a national energy reform committee as well as Parliament’s interest in sector reform align with the Ministry of Energy’s reform preparation. An essential part of preparation will be agreeing to the energy market structure, state-owned company operations, tariff reform, and government’s strategy for achieving its vision. This is not an easy process as the realities of sector financing, institutional authorities, ownership, technical requirements and energy transition must all be considered in preparing reform actions.

What risks may arise during the reform? How can they be prevented?

Perhaps the greatest challenge to energy reform is energy crisis; this may occur in a number of ways. For Mongolia, lack of generation/supply could result in crisis and, the country is operating in a precarious situation where its transmission infrastructure has almost reached its highest potential; activities are underway to expand transmission and distribution. A second challenge is maintaining political will.

Energy reform actions are complex and require consistent and long-term policy, planning and financial commitments that can be altered by political and geopolitical priorities.

A third risk is that sector reform is implemented too quickily or too slowly; timing for reforms must align with available financing, social awarness and technical capacity. Finally, the overall level of financing reforms which can be significant. This generally requires a reconsideration of current operations; this may include repurposing government funds, closure of certain non-performing assets, introducing new investments and an improved tariff regime, all of which are wrought with political, economic and social risk.