Ulaanbaatar's growing pains

By bne IntelliNews October 9, 2013

Terrence Edwards in Ulaanbaatar -

Rapid urban development is never straightforward - and can be dangerous when shortcuts are taken to keep up with a furious pace. Mongolia's capital Ulaanbaatar is a prime example, where former officials are now under investigation as the current authorities grapple with heat and power shortages, and problems associated with traffic congestion.

Ulaanbaatar has been at the centre of Mongolia's mining boom, serving as the base of operations for the biggest foreign and domestic players in mining, banking and finance. "UB, not only being the capital, is also the place for half the population. It has become a cluster spot for businesses to convene in Mongolia," says Saijrakh Narantuguldur, director for Khan Investment Management, which manages the Khan Mongolia Equity Fund.

But this has brought its own challenges, with the October 3 collapse of scaffolding into the street at the central Twin Towers site a vivid reminder of why Ulaanbaatar Mayor Erdene Bat-Uul felt forced to suspend a number of construction projects last year.

In July, the State Specialized Inspection Agency (SSIA) reported that nine construction site accidents had occurred so far this year, claiming the lives of four workers. This was sharply down from the 36 construction site accidents that occurred in the first half of 2012, resulting in 18 fatalities - a high number attributed to the lax conditions that were pervasive under the administration of Bat-Uul's predecessor, Gombosuren Munkhbayar. Authorities announced in October that the former mayor was under investigation along with two other members of his administration for allegedly profiting on the sale of state-owned property.

After a young person died from falling debris at a construction site under development by Eco Construction last year, Bat-Uul suspended all real-estate development to allow city authorities time to review permits and shutdown the ones that did not go through official channels. The SSIA said in July it had discovered 36 construction sites operating without permits.

As well as building accidents, the city 's population faces growing health risks from the pollution caused by coal burning during the winter - the World Health Organisation named Ulaanbaatar as the second-most polluted city in the world in 2011 - worsening traffic problems, and an expected energy and heat crunch as the myriad of new building projects attempt to link up to the grid.

Heat is essential in Ulaanbaatar, the world's coldest capital, as temperatures often fall below 30° Celsius in December and January. "Everyone agrees that there will be a shortage of heat in Ulaanbaatar until the new power plant is built," says Harris Kupperman, chief executive officer of commercial properties-focused Mongolia Growth Group.

Progress on a new coal-fired plant to ease pressure on the capital's Soviet-era power infrastructure has been fitful as city officials repeatedly scrapped plans and changed locations. In August GDF Suez led a group selected to build a $1.2bn coal-fired power plant 15 kilometres east of downtown Ulaanbaatar, which is planned to start operating in 2017.

The success of public projects in Ulaanbaatar is patchy at best. The city is prepping this month to repair cracks to the Peace Bridge, which serves as the gateway to the lucrative Zaisan district. City officials erected a wooden beam to keep the concrete bridge from falling apart last year and it has remained that way for a year since. The Professional Inspection Agency has called for emergency response.

Also, this summer the city repaved a number of roads in the central area of Ulaanbaatar, though the capital's denizens won't know if the job was done better than past years until they see how well they hold up to the blistering winter conditions.

The mismanagement of the city's infrastructure heightens the risk that soon-to-open apartment complexes will lack heat and power failures will become more common. "The City of Ulaanbaatar has been pretty clear that they will not be giving out new heating permits for non-residential construction until 2016," says Kupperman. "The city has also said that they would review previously issued heating permits and revoke a number of them based upon how they were obtained. The first batch of these permits has been revoked with more to come."

New infrastructure to deliver heat and electricity is also crucial for reducing pollution, as the city hopes to curb raw coal burning by half the 1.2m population who live in unplanned districts.

Ulaanbaatar serves as the default model for development in Mongolia because it is where most investment dollars are spent. So far, it is setting a bad example for the rest of the country.

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