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Events
Ashok Lavasa: PPPs Can Actively Support Energy Transition www.montsame.mn
Asian Development Bank Vice President for Market Solutions Ashok Lavasa delivered a keynote remark at Mongolia Economic Forum- 2023 on 9 July. In his keynote remark, he emphasized the importance of developing the enabling environment for private sector participation and expanding private sector financing to meet growing investment needs for inclusive growth and climate action. Below are some highlights from his speech.
ADB considers its engagement with Mongolia to be of the highest importance. As Mongolia’s long-term development partner, ADB will support Mongolia in its development vision (Vision 2050) to become a “dynamic and modern economy with a thriving middle class by 2050”. Supporting the New Recovery Policy and its six priority areas being the near-term priority (recovery in ports, energy recovery, industrial recovery, urban and rural recovery, green recovery, and recovery in public productivity).
ADB now sees the Mongolian economy as firmly on a path of recovery and in a period of post-pandemic expansion. ADB’s growth forecast for 2023 is 5.4%, and 6.1% for 2024. This trails a solid 4.8% seen in 2022, sluggish growth of 1.6% in 2021, and a contraction of 4.6% in 2020. With exports recently buoyed by higher commodity prices, things are looking brighter for Mongolia. However, vulnerabilities remain.
Mongolia is at the center of the climate crisis, with the growing threat of desertification, storms, forest fires, droughts and severe winters, which can devastate livestock. Energy security and the need for clean energy is a pressing concern.
Supporting the Mongolian economy to be more resilient, diversified, and inclusive is a key objective of ADB. Overall, ADB’s support since Mongolia joined ADB in 1991 has totaled more than $4 billion, and today, our active portfolio stands at over $1.5 billion. ADB’s portfolio peaked in 2020 at close to $2 billion, as we scaled up support to assist Mongolia in its COVID-19 response, including the provision of urgent assistance for social and health needs.
Financing public infrastructure is at the heart of ADB’s operations. While Mongolia has made significant progress in building public infrastructure, faster growth continues to be held back by a major infrastructure gap.
Public sector financing can only stretch so far. Governments throughout the world are increasingly fiscally constrained and debt levels can only rise so far. Finding ways in which to attract private sector financing is therefore critical.
ADB is committed to supporting private enterprise and working with the government in creating a conducive environment to further boost private investment.
ADB is currently undergoing an organizational change that places greater emphasis on expanding its own greater mobilization of private sector resources. Our goal is to scale up private sector operations to one-third of all operations in the coming years.
The goal of ADB’s private sector operations is not to compete with or crowd-out commercial financing, but to crowd-in investment and financing and to close market gaps, with a cofinancing target of $2.50 for every $1.00 of our own private sector financing.
As we look at the financial sector here in Mongolia, we now see more opportunities for green and social financing. Green and social bonds, including gender bonds, represent an emergent opportunity for developing countries to tap international private sector capital searching for responsible investments.
Food security is a priority area of ADB & the Mongolian government and one that was exposed as a vulnerability during the COVID-19 pandemic. Under ADB’s private sector operations, we were able to respond during 2020 by extending liquidity support to sustain businesses during a period of tight credit.
ADB announced a partnership at COP26 to launch an Energy Transition Mechanism (ETM) to accelerate the transition from coal to clean energy. ETM combines concessional and competitively priced market funds as a low-cost financing package that incentivizes early retirement or repurposing of coal-fired power plants. We aim for this to be a new model for acceleration of coal plant retirement across the region, with the goal of a massive reduction in carbon dioxide emissions.
As Asia and the Pacific’s Climate Bank, ADB’s own ambition is to provide up to $100 billion in climate finance by 2030 across all countries that we operate in. Globally, there are now huge sums of capital looking to support clean energy and climate finance, and Mongolia can take advantage of such capital.
PPPs can actively support energy transition in terms of renewable energy generation, but also in terms of energy efficiency and this is where private sector innovation and the long-term nature of PPP contracts can add significant value through whole-life cost efficiencies.
ADB has been actively looking to support Mongolia with building its PPP pipeline despite challenges. The environment to enable PPPs is advancing positively. The Law on Public–Private Partnership was approved by the Parliament in December 2022 (with the help of ADB and other partners), and next, the government plans to make this law effective, followed by operationalization of its PPP center. Experience shows that these are critical reforms necessary to galvanize PPP transactions. ADB looks forward to continuing to support the development of PPPs by identifying a suitable pilot project that can be used to test the new PPP law.
Creating an attractive investment environment remains paramount. Improved infrastructure is just one part of this.
The banking and financial sector in Mongolia has led the way in its digital transformation, and the public sector has made tremendous in-roads with the launching of the e-Mongolia platform. ADB will continue to support the government and private sector in advancing digitalization, seeking to apply solutions in our operations, including in trade, fintech, education, health, and agribusiness.
Published Date:2023-07-18
