Mongolian Prime Minister Uchral Nyam-Osor was recently on a panel titled “No Power, No AI” at the World Economic Forum in Dalian, China. He touted Mongolia as a place to invest in renewable energy. In the seemingly inevitable AI future, global power consumption will dramatically increase. I’m generally positive about this future, but I also believe governments (with the exception of China) aren’t really taking power demand seriously.

PM Uchral wants Mongolia to be a destination for digital infrastructure and renewable energy. In my view, this is partly an attempt to turn Mongolia’s biggest infrastructure weakness into an investment story: the country badly needs more power.

The PM’s pitch sounds good. Mongolia has land, sun, cold weather, and proximity to China. But AI data centers do not run on vibes. They need power, water, fiber, political certainty, and security. Mongolia has some of those things in theory. In practice, each one gets complicated pretty quickly.

These are comments made by PM Uchral, edited lightly for grammar and clarity:

If you want to work in Mongolia, you have a few advantages:

  1. Mongolia is non-aligned. It’s a democratic country with a strong interest in becoming a trusted digital and energy partner.
  2. Data sovereignty is one of Mongolia’s big advantages. Companies seek secure and strategically located data infrastructure.
  3. Mongolia has significant land opportunity, with the government owning most of the land.
  4. Mongolia is a landlocked country. Mongolia is a land “linked” country and is close to China. You can link to China.

After he said this, the moderator, Michael Wang from CGTN, asked a question:

Moderator: How fast do you think regulation and permitting might take? Uchral: It’s about the licensing?

Moderator: How fast is it? Uchral: It’s fast enough. We will try… My main goal is about red tape reduction.

Note: CATL Chairman Robin Zeng gave Uchral a round of applause for this.

I want to talk about each one of these supposed advantages and explain why they might not actually be advantages.

Non-alignment

  1. Mongolia is non-aligned. It’s a democratic country with a strong interest in becoming a trusted digital and energy partner.

Mongolia is truly non-aligned. Its small size and location next to two serious powers, China and Russia, create an environment where Mongolia is everyone’s friend and no one’s enemy. This is great for economic ties. Mongolia’s famous Third Neighbor Policy aims to use states such as South Korea, Japan, and even the US and EU as a counterbalance to Mongolia’s neighbors.

Unfortunately, this desire to make everyone happy means Mongolia wants to keep its neighbors (and other third neighbors) happy. A few examples:

  • Mongolia’s main North/South rail corridor has been largely stagnant since 1991. It is still 50% owned by a Russian partner, and this partner refuses to allow expansion, connection to other rail lines, or real investment. An East/West rail corridor would significantly improve industry in remote Mongolian regions, but it is dead on arrival due to this situation.
  • In 2018, agents of the Turkish government abducted a director of schools associated with the Gülen movement in Ulaanbaatar. They succeeded in getting as far as the airport before being stopped by Mongolian authorities. The agents were allowed to leave, and while the school director was saved from abduction, the schools were later shut down at the request of the Turkish government.
  • The proposed 315 MW Egiin Gol hydropower plant has been effectively vetoed by Russia. Russia claims it would negatively affect water flowing to Lake Baikal.

These examples show that while Mongolia is indeed non-aligned, it is often at the whims of its neighbors, and sometimes its third neighbors. Mongolia certainly is interested in becoming an energy partner, probably because Mongolia’s electricity generation has lagged behind demand. For a data center investor, the issue is not whether Mongolia is friendly. It is whether Mongolia can protect a project when a neighbor, supplier, lender, or political ally decides it has a problem with it.

Mongolia electricity balance

Source: Data.mn

Data sovereignty

  1. Data sovereignty is one of Mongolia’s big advantages. Companies seek secure and strategically located data infrastructure.

Uchral’s premise here is that companies are seeking secure and strategically located data infrastructure. Perhaps he wants to make something like the digital equivalent of the “doomsday” seed vault in Svalbard. So what do companies want when it comes to data sovereignty? I would guess several things:

  1. Reliable infrastructure to power data centers
  2. Solid security to keep data secure
  3. Affordable prices for renting servers or colocating servers
  4. Easy ability to move data in and out

That’s about it. Here is how Mongolia stacks up:

  1. Mongolia currently does not have enough electricity for its own consumption, and water in Ulaanbaatar, where nearly all skilled labor exists, is also a constraint. The OECD projects that Mongolia’s water demand could exceed current supply by 2040 or sooner, with scarcity likely to worsen in high-demand areas including Ulaanbaatar. The recent MCC-Mongolia Water Compact increased Ulaanbaatar’s available water supply by nearly 80%, which is good news, but it also shows the scale of the problem. Northern Mongolia has more water, but it lacks skilled workers. The large Oyu Tolgoi copper mine in southern Mongolia currently flies workers in and out of Ulaanbaatar on a shift schedule.
  2. Mongolia’s only publicly listed Tier III data center, which guarantees reliability, security, and redundancy, is run by Khan Bank, Mongolia’s largest commercial bank. Mongolia’s government-owned National Data Center claims to have a Tier III rating but is not listed on the Uptime Institute’s website. Mongolia’s new national data center aims for a Tier IV rating, but will be located in the New Zuunmod area, which shares water resources with Ulaanbaatar.
  3. Prices for publicly rentable servers in Mongolia appear at first glance to be in line with international pricing, until you look into the machine details and see that they are running servers based on chipsets that first appeared in 2010-2014.
  4. According to the International Telecommunication Union (ITU), in 2023, Mongolia’s total bandwidth was 590 gigabits per second across all links (fiber and satellite). Utilization in 2023 was 66% in total, but during peak hours my understanding is that these links are nearly full. The projection was 750 Gbps in 2024, but even this wouldn’t be a lot for an AI data center. A gigawatt AI data center would need somewhere around 1 terabit per second (Tbps). One terabit per second is 1,000 gigabits per second.

This is not even mentioning the danger that Russia’s internet kill switch poses. It is unknown how a possible internet shutdown in Russia would affect the internet in Mongolia.

Significant land opportunity

  1. Significant land opportunity, with the government owning most of the land.

Mongolia certainly has land, and PM Uchral is right that the state controls most of it. That makes land available in theory. Unfortunately, it does not make a gigawatt data center easy to build. A project of that scale needs power, water, fiber, roads, permits, local consent, and contracts that investors believe will still mean the same thing ten years later. Local consent from the herders who use the land is a real sticking point.

Mongolia can bring in outside expertise, and the Oyu Tolgoi mine is the obvious example. It also shows the risk. Oyu Tolgoi has gone through tax disputes, financing disputes, a 2022 “reset” with Rio Tinto, corruption investigations around earlier agreements, and continuing political pressure to renegotiate the terms. The mine is successful partly because the resource is enormous. A data center investor will have to ask whether power, water, and political patience are enormous enough too.

Oyu Tolgoi also shows how expensive “available land” can become once a project gets going. The mine spent millions of dollars on local development, including roads, schools, health facilities, power connections, water systems, and herder support programs. Under its 2015 Cooperation Agreement, Oyu Tolgoi contributes $5 million per year to the Gobi Oyu Development Support Fund for community projects in Umnugovi aimag. By 2019, that fund had invested $22 million in 179 projects, including schools, kindergartens, a health care center, a flood prevention dam, livestock disinfection, and other local programs.

Moderator: How fast do you think regulation and permitting might take? Uchral: It’s about the licensing?

Moderator: How fast is it? Uchral: It’s fast enough. We will try… My main goal is about red tape reduction.

The legal framework for this push into energy and data centers has not been finalized yet. Even when it is finished, I don’t believe there will be an answer to how long a project would take from the start of the permit process to breaking ground.

Mongolia is land “linked” to China

  1. Mongolia is a landlocked country. Mongolia is a land “linked” country and is close to China. You can link to China.

This is perhaps Mongolia’s greatest advantage, and also its greatest risk. First, proximity to China means easy access to many of the technologies required for data centers, including networking, cooling systems, solar, and newer battery technologies like sodium-ion batteries from CATL. The main exception is state-of-the-art AI chips, particularly from Nvidia. Chinese chips are indeed catching up, but they aren’t there yet.

Chinese AI companies are currently competing by being more efficient via distillation, or by increasing the number of Chinese AI chips, which are less efficient, thereby increasing power use. In China, increased power use is not as much of a problem given that China’s power production is increasing 9.7% per year (compared to Mongolia’s average of 5% per year since 2011, with demand outstripping supply by 30% in 2024).

China also purchases nearly all of Mongolia’s current exports, which are mostly mining exports. Yet China would not be a realistic consumer of data center output in Mongolia. An optimist would say that Mongolia, with its massive solar resources (about 250 sunny days a year), is perfect for solar. Mongolia’s cold, previously a big negative for battery storage, isn’t as much of a problem with new sodium-ion battery technology, which retains 90% capacity down to temperatures of -40° C. Yet it is hard to understand why a Chinese company would build a data center in Mongolia, as opposed to at home, where it would benefit from low-interest government loans.

I’m generally positive about Mongolia’s ability to be energy independent in the future (it isn’t currently). One thing holding domestic energy production back is price. Mongolia’s current energy prices (256 MNT/kWh, or about $0.07 USD/kWh on average for homes) result in domestic energy production being unattractive for private producers. China also keeps energy prices low through a mixture of state investment and cross subsidies. CATL recently announced a battery storage facility planned for Mongolia in the range of 100-400 MWh. This represents 4-14% of Mongolia’s energy production shortfall in 2024. For comparison, for a 100 MW AI data center, Mongolia would need more than 2,000 MWh of battery storage for that data center alone.

This isn’t a problem for China, given massive state investment in Chinese energy production. Mongolia does not seem willing to put massive state investment into power generation. At current prices, according to my own back-of-the-napkin math, a solar PV + battery power plant has a payback period of 20+ years, beyond the life of the batteries themselves, making this proposition unprofitable.

If the end consumer of this data center capacity is not China, but someone else, there is always the geopolitical risk to consider. With all internet fiber lines leaving Mongolia running through either China or Russia, and with close physical access to Mongolia, running state-of-the-art AI data centers in Mongolia would be a risk to both intellectual property and, given potential export controls on frontier AI models, to the companies operating them.

Mongolia’s own National Data Center was hacked in 2018 by suspected state actors and was discovered by an outside research lab, which notified the Mongolian government.

Poor Mongolia, so far from the ocean, so close to China.

Mongolia may eventually become a serious energy exporter or data infrastructure hub. I would like to see that happen. But the current pitch skips over the hard part: Mongolia is still trying to solve the same power, water, and connectivity constraints that an AI data center would immediately make worse.

A ton of copper concentrate is a commodity. AI may be the new electricity, but companies and states care where this new power is generated. Mongolia has not yet proven its ability to be a good steward of investor rights or a free market.