Monday, January 23, 2012

Bhutan, Mongolia and Nepal: Contribution of natural resources to growth

Here is a highly recommended piece about Mongolia’s obsession with mining in the Gobi desert and its plan to reap benefits out of its sale. Mongolia is trying to exploit its natural resources and focus on something where it has comparative advantage on rather than getting bogged down on debate over resource rights and resource curse. It is doling out money to its citizen and is setting up a fund to channelize income from mining (just like Norway and Botswana are doing with earning from petro fuel and diamond respectively) to fund development activities.

While reading the article, I kept thinking about the sorry state of hydropower in Nepal, the victory of never-ending discussion and talks over actual construction and the apprehension of being dominated by big foreign investors (and the countries they represent). For someone who is always thinking of spurring growth, increasing exports, jacking up per capita income, and providing appropriate social protection to the needy people, all the objections and hindrances sound totally nonsense. Much has been written about Nepal’s hydropower potential. I won’t attempt to repeat them here—just Google it!

Let me give comparative stats and discussion (extracted from various sources) on Bhutan, Mongolia and Nepal—all are landlocked—and shed light on how the first two are successfully exploiting their natural resources on which they have comparative advantage and how the latter is lost in the never-ending debate, fear of domination by alien investors and smugness over the running waters.


  • GDP size: $11.02 billion (PPP in 2010)
  • Per capita income: $3,600 (PPP in 2010)
  • Population: 3.133 million (July 2011 est.)
  • Real GDP growth: 6.1% in 2010
  • In the third quarter of 2011 Mongolia’s economy grew by 21% compared with the same period in 2010.
  • More than 80% of its exports are minerals, a proportion expected to rise in a few years to 95%.
  • Mongolia makes mining geologists salivate over its known riches and unexplored potential—for copper, coal, gold, silver, uranium, molybdenum, and on and on. Some 3,000 mining licences have been issued.
  • The IMF expects growth to average 14% a year between 2012 and 2016. In 2013, the year production is due to begin in earnest at OT (Oyu Tolgoi, or “Turquoise Hill”), it is forecast to reach 22.9%. Others think it will be at least twice that.
  • The project is a joint venture between the Mongolian government (34%) and Ivanhoe Mines of Canada (66%), which is in turn 49% owned by Rio Tinto, the mining giant that is managing OT and has put up most of the money.
  • This mine will produce 450,000 tonnes of copper a year, making it one of the world’s five biggest mines, as well as being a big gold producer. And it will have a life of at least 50 years.
  • From 2013 its sales will start adding an average of about five percentage points a year to the national growth rate up to 2020, when its impact on the economy will peak.
  • By November last year over $3 billion had already been spent on OT, a figure that will rise to $6 billion by 2013 and $10 billion by 2020. For Mongolia, a $6 billion economy, this is enormous.
  • Mongolian coal production is expected to increase from about 16m tonnes a year now to 40m by 2020 and 240m by 2040. Again China provides a ready market, but the mining boom has exacerbated Mongolian fears of a Chinese takeover by commercial stealth.
  • Economists fret about a “resource curse”, or “Dutch disease”. […]For economists, the resource curse is a risk Mongolia has little option but to take. […] its comparative advantage is in commodities and mining services. There is no point in trying to compete in manufacturing with “the biggest factory on the planet” next door in China.


  • GDP size: $3.875 billion (PPP in 2010)
  • Per capita income: $5,500 (PPP in 2010)
  • Population: 708,427 (July 2011 est.)
  • Real GDP growth: 6.7% (2010)
  • Bhutan has the potential to develop a capacity of 23,760 MW, of which only 5% has been tapped so far. Under the current year plan, the installed hydropower generation capacity is projected to rise from 1,488 MW in 2007 to 1,602 MW in 2013, with the planned commissioning of the 114 MW Dagachu hydropower project.
  • The share of electricity (taxes plus dividends) in domestic revenue is expected to rise from about 43 percent in 2008/09 to over 53 percent by the end of the 10FYP. Hydropower exports constitute about two-fifths of total exports.
  • The power sector generates the highest revenue, followed by tourism and banking sector. Hydropower contributes to more than 40% of domestic revenue.
  • The first hydropower project (360 kW) in Bhutan was constructed on the Samteling Chhu in Thimphu. This mini-hydro electric plant was commissioned in 1967. During the 1970s, Bhutan and India began to look more closely into channeling the hydropower potential.
  • Bhutan is exporting 1,200 megawatts to India and Bangladesh is also seeking power import from Bhutan.
  • By 2020, the government plans increase generation capacity to 10,000 MW, about seven times the present level. To attain this goal, Bhutan and India have agreed to develop 10 hydropower projects together.


  • GDP size: $35.81 billion ((PPP in 2010)
  • Per capita income: $1,200 (PPP in 2010)
  • Population: 29.391 million (July 2011 est.)
  • Real GDP growth: 4.6% (2010)
  • Electricity demand-supply gap of around 400 MW
  • Over 16 hours of load-shedding during dry season
  • Power generation target has been revised to between 10000 MW to 20000 MW (in ten years time) depending on which political party is at the helm of power. These are just lofty talks with no concrete plan of action.
  • Read more on hydropower woes here

UPDATE (2012-01-26): Here is the PM’s economic adviser arguing that we should be thinking about generating hydropower first, not upstream-downstream benefits before the hydropower is developed. The benefit of providing enough electricity to the power hungry households and businesses  is far greater than the constant drumbeating of upstream and downstream benefits by some NGOs whose sustainability depends on opposing such investments on the pretext of environment damage and upstream-downstream benefits. These should be looked upon at and are important issues. But, I don’t think these come before we generate hydropower in the first place. Highly recommended write up by Rameshwore Prasad Khanal.