Water Demand Management in Mongolia

2. Improving water availability

Abstract

Water demand management policies can help achieve multiple objectives, including to meet and balance increasing water demand, reduce the risk of water resources depletion caused by structural and unsustainable over-abstraction and facilitate informed decisions to manage competing water uses when water resources are scarce.

Water demand management is often achieved through a mix of instruments, including economic instruments (tariffs, water use fees, pollution fees), water allocation regimes that comprise water information, permits, and water management plans. Water-efficient technologies, such as metering and wastewater reuse, can further reduce pressure on scarce water resources.

Key messages

A mix of policy instruments can help balance increasing water demand, reduce the risk of water resources depletion, and operationalise trade-offs between water uses when water resources are scarce. Over the past years, Mongolia has made remarkable steps to strengthen the use of economic instruments for water management. The pollution and water fees can be further strengthened by:

• Charging the water use fee to all water users and consumers, including agriculture sector, government entities and households, while ensuring special provisions for vulnerable groups.

• Enhancing fee collection to reduce the gap between imposed fee and collected fee, e.g., by setting targets for fee collection and revenue collection in IWRM plans, fostering cooperation and coordination between government entities, and through the new digital permit system.

Mongolia has policies, institutions and practices in place in support of water allocation regimes. Water allocation systems in water-stressed water bodies could be developed by:

• Providing a national framework for integrating water allocation in the national IWRM plan, basin plans, and basin planning guidelines. The framework may cover principles, processes, methodologies, infrastructure needs, and capacity building for water allocation.

• Prioritising the introduction of water allocation systems in basins under pressure, in alignment with the national framework on water allocation procedures.

• Setting and enforcing long-term and short-term abstraction limits and aligning permits with the water balance.

• Defining a process for setting short-term abstraction limits during periods of water stress and defining in more detail a sequence of priority uses during exceptional circumstances.

• Developing grey or green water infrastructure that support water allocation through enabling storage, treatment and water delivery, prioritising surface water use and wastewater treatment.

Strengthening the institutions involved in water management and governance may improve overall water demand management. Some governance modalities could be considered:

• Strengthening national coordination mechanisms, notably the National Water Council, in approving water management plans, the enforcement of economic instruments, permits, and strengthening river basin organisations.

• Gradually achieving the transfer of 35% of the water use fees to local authorities to fund activities of River Basin Organisations, under supervision of the National Water Council.

• Collaboration and coordination 1) between government entities at (sub) catchment level through cooperation framework agreements or water pacts, and 2) government, private sector and civil society through groundwater management agreements.

• Delineating and consolidating responsibilities such as for monitoring, inspections and fee collection, which could initially be tested within a local pilot arrangement.

Addressing water quality through wastewater treatment and stimulating wastewater reuse can strengthen reliable water supply. This will require a combination of approaches, including the following:

• Introducing “Best Available Techniques” (BAT) policies for industrial wastewater treatment. Consider starting with one industry, e.g. textiles or meat processing.

• Stimulating wastewater reuse by providing an enabling legal and regulatory framework, prioritising industries that are ready and financially able to adopt wastewater reuse.

2.1. Introduction

Demand for water is growing in Mongolia and projected to increase well into 2030. At the same time, water resources are under pressure due to aquifer depletion, climate change - with the melting of snow cover in western Mongolia - and pollution (Questionnaire, 2023[1]).

Water scarcity is likely to worsen in high-demand areas, for example in urbanised areas such as Ulaanbaatar, industrialised areas such as the Southern Gobi Desert, livestock grazing areas particularly during droughts, and in areas with planned agricultural, industrial and energy developments (Badarch et al., 2021[2]). In all scenarios, water demand is projected to exceed current water supply by 2040 or even sooner (presentations by the Ministry of Environment and the Water Authority) (2030 Water Resources Group, 2014[3]; Fan, 2020[4]). According to the Country Climate and Development Report for Mongolia, future water resources projections under various climate scenarios have high uncertainty (World Bank, 2024[5]).

Effective water demand management can help alleviate competition for resources and mitigate negative externalities, such as land subsidence and the degradation of water-dependent ecosystems. Water demand is best managed through a mix of instruments, as shown on Figure 3.1. Water management plans, river basin or aquifer management plans, or drought management plans provide the basic conditions for water demand management. In addition, economic instruments (including tariffs, water use fees, pollution fees), permits and water allocation regimes support the implementation of those plans. Water-efficient technologies, such as metering and wastewater reuse, can further reduce pressure on scarce water resources.

Figure 2.1. Water demand management instruments

Source: Authors.

Water demand management strategies that aim to increase water consumption in underserviced communities, such as Ger districts, are out of scope for this chapter. Some households, for example rural users and urban users in Ulaanbaatar’s Ger district, still have limited water supply. The Water Service Regulatory Commission (WSRC) has run several successful campaigns to increase the use of drinking water supply to underserved communities.

This chapter presents policy recommendations aimed at enhancing the management of water demand in Mongolia. It discusses strengthening economic instruments to manage water quantity (Section 3.2), refining water allocation regimes (Section 2.3), and improving wastewater treatment and reuse practices (Section 2.4). Below, the table provides an overview of Mongolia’s existing policy instruments relevant to water demand management.

Table 2.1. Overview of existing policy instruments for water demand management in Mongolia

Instrument	Authority	Regulatory base	Exemptions
Economic instruments
Water use fee (applies to groundwater and surface water use)	General Taxation Department	Law on Fees for Natural Resources Use	Water consumption for domestic purpose
	Local tax offices	Resolution on ecology-economic evaluation of water	Fire fighting
		Charges are differentiated per basin and water source (recycled, ground-, and wastewater)	Recycled and reused water
			Surface water use for irrigation
			Snow and rainwater collection and use for livestock and irrigation
			Activities for environmental protection
Water Pollution Fee	General Taxation Department	Law on Water Pollution Fees, additional regulations and standards	All entities discharging their wastewater to the environment or central sewerage network except entities that are financed by the state budget, IF they treat their wastewater up to wastewater quality standards
	Local tax offices
Payment for ecosystem services	Not in place
Water supply services fee	Water Service Regulatory Commission; USUG	Base tariff + actual consumption volume*tariff per liter of clean water supplied
Wastewater treatment services fee	Water Service Regulatory Commission; USUG	Base tariff + actual discharged volume*tariff per litre of wastewater discharged
Regulatory instruments
Water allocation regimes	Water Agency approves potential water resources amount available for use per sector for each river basin
Water use permits for surface and groundwater	MoET	Applies to: water supply, agriculture, mining, energy, environmental, industry and livestock	Water consumption for domestic purpose
	Water Agency (> 100 m3)		Fire fighting
	RBA (50 100 m3)		Recycled and reused
	Aimag (< 50 m3)		Surface water use for irrigation
			Snow and rainwater collection and use for livestock and irrigation
			Activities for environmental protection
Wastewater discharge permits	Water Agency (>50 m3 or with hazardous pollutants)	Applies to: wastewater discharge to environment and to the central sewerage network	All entities discharging their wastewater to the environment or central sewerage network except entities that are financed by the state budget (on the condition that their wastewater discharge complies with wastewater quality standards),
	RBA (<50m3)
Water resources planning
IWRM plan	Approved by MoET	Covers river basin management plans and groundwater management plans
	Developed by Water Agency and 21 River Basin Organisations (RBOs)
	Implemented by RBOs
Protection of headwaters of rivers, water bodies and water supply sources	River basin authority	Law of Mongolia on Water
	Provincial and capital city Citizen Representative Khural (Council or Parliament)	Resolution of the Citizen Representative Khural of provinces and capital city

Source: (2030 Water Resources Group, 2019[6]; Questionnaire, 2023[7]); and a review of regulations.

2.2. Strengthening the enforcement of economic instruments for water management

Water use fees can incentivise sustainable water use and are therefore an important tool to manage water demand. The main economic rationale of implementing water use fees is to make users internalise the economic value of abstracting water and of releasing pollution in water streams. In addition, abstraction fees and pollution charges raise revenues that can help cover expenditures that contribute to water management, though this is not their primary purpose (OECD, 2017[8]).

2.2.1. Water use fees

Over the past few years, Mongolia has strengthened its economic instruments for water management. Water abstraction fees for surface water and groundwater, called “water use fees”, have been in place since 2012 and fee collection has increased in constant terms over the years (United Nations Economic Commission for Europe, 2018[9]; 2030 Water Resources Group, 2014[3]). The Water Agency or Ministry of Environment and Climate Change (MECC) propose the fee levels to Cabinet, who approves the fees.

Water use fees differ per river basin, economic activity, and water source (groundwater or surface water) depending on scarcity (United Nations Economic Commission for Europe, 2018[9]). The minimum and maximum fees for groundwater use are higher than for surface water use (Law of Mongolia on Fees for Natural Resources Use, 2022[10]). The Tuul River basin, the most utilised river basin in the country, has the highest abstraction charges.

Box 2.1. The difference between water use fees for water consumers and water users

The Mongolian Water Law makes a critical distinction between water consumers and water users. This distinction carries implications for the applicability of economic instruments:

Water consumers are those who use water for non-profit purposes: they pay a water service fee

“Water consumers” are the citizens, economic entities and organizations who utilize water or the water environment for non-profit purposes such as drinking, household needs, herding and agriculture.

Water consumers are exempted from paying water use fees, although, depending on how they receive their water, they are charged a service fee. Water consumers also include crop production, livestock water supply and domestic water consumption. (Ministry of Environment and Green Development, 2013[11])

Water users are those who use water for profit: they pay water use fees

“Water users” are those who use water or the water environment for profit in the industry and services sectors. Water users are charged a water use fee. (Ministry of Environment and Green Development, 2013[11])

Source: (Ministry of Environment and Green Development, 2013[11]) (now Ministry of Environment and Climate Change).

Revenues from the water use fee have somewhat increased since 2018 and constitute a modest proportion of all natural resource use fees (Figure 2.2). From 2020 to 2023, revenues from the water use fee has steadily increased due to an increased number of water users combined with a fee increase in 2022. The number of water use permits (referred to as “conclusions”) issued by the Water Agency (100 CUM/day) was 163 in 2020, 184 in 2021, and 212 in 2022 (Water Agency, 2024[12]). In 2022, the water use fee for certain sectors, including copper, coal, gold mining, and beverage production, was increased (Government of Mongolia, 2022[13]). For surface water use, the fee was raised from 15% to 25% of the ecological-economic value. Similarly, for groundwater use, the fee was increased from 20% to 35% of the ecological-economic value. Most of the water use fee is paid by the mining and extractive industries (Montsame news, 2023[14]).

Figure 2.2. Revenue from the water use fee has increased since 2018

Note: the water resource use fee is a component of the natural resource use fee. The other four revenue components of the natural resource use fee are: the use of plants, use of forest resources, use of animal resources, and use of land resources.

Source: Ministry of Finance. Budget draft of Mongolia 2024.

Only a proportion of the imposed water resources use fees are collected. In 2022, based on the total number of water use conclusions that the Water Authority has issued, the total imposed water use fee should have been 71 Bn MNT (USD ~21 million). However, the total water use fee collected at national level was 51 Bn MNT (USD ~ 15 million). The imposed water use fee in 2023 was 121.6 Bn MNT (USD ~35 million) of which 85.6 Bn MNT (USD ~25 mln) (Water Agency, 2024[12]; Ministry of Environment and Climate Change, 2024[15]). This shows there is still room for improvement in collecting the water use fee. The agricultural sector, which accounts for more than half of water abstractions, has one of the largest water use fee collection gaps, particularly commercial household farmers (Figure 2.3).

The water use fees have been designed to encourage sustainable water use, though this incentive may not be as strong in practice due to 1) deteriorating irrigation infrastructure, 2) a fee collection gap with nearly a third of users unbilled, and 3) low charges that do not change behaviour of water users.

To promote surface water abstraction for agriculture and conserve groundwater resources, agricultural surface water abstractions are exempt from the water use fee (Figure 2.3). However, regardless of the fee exemption, the deteriorating condition of irrigation infrastructure hinders the transition to surface water abstraction (Project Management Unit for the Ministry of Food, 2021[16]). The main water supply source for the irrigation system is groundwater (69.2% for households and 61.7% for business entities) followed by rain and snow melt accumulated in reservoirs (32.2% and 25.9% respectively) and others (lakes, ponds, springs, creeks) (Ministry of Food, Agrilculture and Light Industry, 2022[17]).

Moreover, industry stakeholders reported that the water use fees are a modest share of their total costs, indicating that the price incentive to conserve water is low. There may nevertheless be water users for whom these fees account for a larger share of their operational costs.

Figure 2.3. Water use fee collection for agricultural uses

Proportion of households and businesses from whom fees have been collected (% of the total number of households and businesses reported in the agricultural sector)

Note: these numbers do not take into account subsistence farmers, who are not considered to be water users and are therefore not required to pay the water use fee.

Source: (MOFALI, 2022[18]).

Charging water use fees to for-profit farmers, subsistence farmers, livestock herders and other agricultural sectors that contribute to food security is a sensitive topic, particularly from a social policy perspective. In the 2023-2024 winter, the agricultural sector, notably the small-scale livestock sector comprising herders and herder households, was in need of humanitarian assistance (including food supply) (UNICEF, 2024[19]; FAO, 2024[20]; UNRC, 2024[21]). Extreme cold weather circumstances (“dzud”), affecting 20 out of 21 provinces, prompted a sharp rise in livestock mortality rates. Putting additional financial pressure on the livestock sector, including for forage production, would be challenging. Another constraint in financially incentivising farmers to increase surface water consumption is the lack of registration of for-profit household farmers. These farmers, who should pay the water use fee, are often indistinguishable from non-profit domestic farmers growing food for household consumption.

USUG bills and collects the water use fee from its for-profit water users through the water bill. Commercial and industrial are responsible for 31% of water consumption in Ulaanbaatar (Figure 2.4). The fee is transferred to the Ulaanbaatar city budget (2030 Water Resources Group, 2019[6]). Collecting the water use fee or monitoring collection from small and medium scale water users (<50 m³/day) is very challenging as the number of business entities residing in household apartments is not fully reported to USUG ((n.a.), 2024[22]). Some commercial users that use their own water source are not fully monitored nor charged. The capacity in Ulaanbaatar is not sufficient to register and collect fees from such small and medium water users ((n.a.), 2023[23]). For uses of less than 50 m³ per day, the local environment departments in the aimag governor’s offices are responsible for issuing conclusions and permits; the contract is issued and enforced by the soum or district governors.

Water consumers, such as households, are exempted from the water resources use fee. However, the IWRM plan highlights that water consumption by apartment buildings is “extremely high and inefficient” compared to other household users (Ministry of Environment and Green Development, 2013[11]; 2030 Water Resources Group, 2019[6]). To promote behaviour change and water use efficiency, it is worth exploring charging the water use fee to all water users and consumers, including domestic users who are currently exempted, with special provisions for vulnerable groups.

Requiring drinking water utilities to pay the water use fee for water consumers such as households and government buildings may seem counter-intuitive, given the challenging financial situation of utilities and considering that universal access to improved safe drinking water is yet to be achieved. Charging the water use fee to currently exempted groups also requires strong political support and initiative, as it is a sensitive topic given that water is a basic human need. Nevertheless, applying water use fees to all consumers has advantages, including:

• Incentivising utilities to limit non-revenue water

• Indirectly charging residential and non-residential users for their water consumption

• Contributing to the management and protection of source water

• Signalling the value of water resources, and

• Providing further incentives to make efficient use of scarce water resources. This would require, however, that users do not substitute drinking water with unsustainable groundwater consumption, which needs to be adequately monitored and charged.

Figure 2.4. Share of water consumption by consumer group in Ulaanbaatar

Water supplied at retail level by USUG, OSNAAUG, and PWCs

Note: year of the data is unknown.

Source: (2030 Water Resources Group, 2019[6]).

2.2.2. Water pollution fees

Water pollution fees are imposed on wastewater discharges of citizens, business entities and organisations that produce wastewater and contaminate water. The fee amount is set by the Government. The water pollution fee has been actively collected since 2019, with a steep increase by MNT 2 billion (~USD 581,000) from 2021 to 2023 (Water Agency, 2020-2024[24]). The collected fee increase in 2022 is explained by the fact that a major polluter had been delaying payment for 2020-2021 and paid in 2022 for the three years backlog.

Figure 2.5. Revenues from the water pollution fee

Note: statistics on the year of 2024 are not complete since the reporting was not finalised at the time of publication.

Source: Water Agency statistics, 4 December 2024.

The 2019 amendment to the Law on the Water Pollution Fee integrated the “polluter pays principle”. Since this year, the implementation of the regulation improved, in terms of the number of polluters that have paid the fee and the total collected fee amount. MECC and the Water Agency continuously make effort to improve the implementation of the Law on Water Pollution Fee, by imposing the fee on an increasing number of entities and cancelling exemption cases due to not meeting wastewater quality standards, and other measures. Nevertheless, the gap between imposed and collected fees remains large, with only 39% of the imposed fees effectively collected in 2022 (Table 2.2). This is due to a number of factors: incompleteness of sectorial overarching legislative document compliances and coordination, inadequate pollution level and fee calculation methods, low monitoring and enforcement capacity at local level, and insufficient registration of the polluters. The latter is being improved through the digital water permit system in Ulaanbaatar which is being developed as part of the MCC-funded programme.

Table 2.2. Implementation of the Law on Water Pollution Fee in 2020-2024

	2020	2021	2022	2023	2024 (incomplete)
Imposed Water Pollution Fee, Bn MNT	16.1	16.5	5.95	7.6	4.64
Collected Water Pollution Fee, Bn MNT	0.05	0.48	2.35	2.11	1.68
Number of permits obtained	1931	3622	4285	4042	2232
Number of polluters who have paid the fee	407	1016	1367	-	-
Share of collected fees (% of imposed fees)	0.30%	2.90%	39.50%	27.80%	36%
Exempted Water Pollution Fee, Bn MNT	5.11	4.67	4.61	5.88	3.84
Breakdown of exemptions, Bn MNT:
Funded by state budget	0.2246	0.3254	0.1919	0.2223	0.0003
Domestic wastewater discharge	1.6013	0.3328	0.2788	0.1839	0.0013
Recycle, reuse	3.2862	4.0101	4.1439	5.472	3.8412

Note: statistics on the year of 2024 are not complete since the reporting was not finalised at the time of publication.

Source: Water Agency statistics, 4 December 2024.

According to the exemption clauses stated in the Law on Water Pollution Fee, if state-funded organisations such as public schools and hospitals comply with effluent standards, they are exempted from the fee. However, in practice not all entities comply (Parry and Habib, 2023[25]) (Amgalan et al., 2021[26]). WSS utility operators, responsible for the treatment of domestic wastewater, lose their exemption each year due to incompliance with effluent standards. Some of these cases have been taken to court, for which the process is still ongoing.

Recycled water and treated wastewater reuse practices are rewarded with a fee exemption. However, the actual environmental impact would need to be checked and monitored, especially with mining and extractive industries that mostly build treated wastewater accumulation reservoirs for reuse and recycle (Box 2.2).

Box 2.2. Exemptions from the industrial water pollution fee

According to the wastewater volume and pollution level definition methodology (Ministry of Environment and Tourism and Ministry of Finance, 2021[27]), if a polluter treats, stores in a reservoir, and reuses/recycles the wastewater, it is exempt from fees for the volume that is reused/recycled. The reservoir must meet standards for mitigating seepage into the soil and evaporation into the air; otherwise, it will be subject to a water pollution fee.

Some mining companies have highlighted the impact of a “rainy year” on the volume of wastewater treated, stored, and reused/recycled. According to legislative documents, if the wastewater is treated and reclaimed, the actual volume of wastewater subject to the fee is calculated based on the volume of water provided to the main network for technological purposes.

In 2023 and 2024, precipitation levels were high (though it is not specified whether these levels were higher than the average historical data or the previous year). As a result, the treated wastewater reservoirs were predominantly filled with rainwater. Given the ample volume of water available for industrial purposes, there was little to no need for additional water supply to the main network, which is equated with the wastewater amount. Consequently, companies argue that there is almost no wastewater volume to impose a fee on.

Source: Interview with the Water Agency, December 2024.

Revenue from the water pollution fees is to be collected by local tax administrations (Ministry of Environment and Green Development, 2013[11]) into the Environment and Climate Fund. The law on the water pollution fee stipulates that pollution charges can be spent on water reserve protection, water decontamination, monitoring and evaluation, and rehabilitation. 50% should be spent on renovation and repair of water treatment facilities (Law of Mongolia on Water Contamination Fees, 2019[28]). However, there have been ongoing concerns about the implementation of the Law on Water Pollution Fee. Stakeholders mentioned that some fees have not been collected, especially for polluters discharging less than 50 m³/d, and that there are uncertainties around the allocation of revenue from the water pollution fees.

To collect the water pollution fee from “small and medium” polluters, discharge permits need to be issued by the river basin authorities, where capacity is usually low and the Water Agency cannot substitute their responsibilities. It is notable that small and medium polluters are accountable for most of the pollution (COD, BOD, SS). According to the Water Agency, the regulation to estimate the pollution level (COD in kg/m³) of wastewater of the industry and service sectors is not adequate, which results in a mismatch between the imposed water pollution fee and the actual pollution level.

Cooperation and coordination between the Water Agency, river basin organisation, aimags and soums in consolidated inspections and fee collection could further reduce the fee collection gap. This cooperation and coordination could start at a local level, for instance a sub basin with many small polluters. Water Cooperation Framework Agreement could support this coordination, as further described in Section 2.3.4 on enforcement and Box 2.5 on the Water Cooperation Agreement in the Awash Basin, Ethiopia.

To further reduce the environmental impact of industrial discharges, the government could also identify wastewater treatment technologies that minimise pollution from industrial processes by determining ‘Best Available Techniques’ (as further described in Section 2.4).

2.2.3. Recommendations to further strengthen economic instruments

• Mongolia has made remarkable progress in implementing and collecting water use and water pollution fees.

• As an instrument to manage water demand and signal water scarcity, the water use fee could be further strengthened, including by applying it to not-for-profit water consumers. A stronger price signal could be sent to water consumers to rationalise water consumption. To signal the value of scarce water resources, charging the water use fee to currently exempted water consumers may be considered, including residential consumers, government buildings and not-for-profit agriculture. For residential consumers, the water use fee could be internalised in the water tariff or charged as a separate fee or tax. For instance, in the Netherlands, households, property owners, landowners, and nature reserve owners pay a water system maintenance charge directly to the local water authority. This water system maintenance charge is not only used for the maintenance of grey infrastructure, but rather encompasses overall water resources management and protection activities. When applying the water use fee to water consumers, careful consideration should be given to non-profit subsistence farmers, low-income households and other vulnerable groups. Subsidies or fee exemptions may be appropriate.

• Strengthening the financial position of River Basin Organisations can improve water management and fee collection (Box 2.3). Revenue distribution to river basin organisations is inadequate at the moment, which limits spending on water initiatives that benefit water users. Transferring more budget to basin organisations could enhance the willingness-to-pay of water users. A first step could be to gradually achieve the transfer of 35% of the earmarked revenue from the water fees to the activities planned by the river basin organisations which, according to the law, should be channelled through the local (aimag and capital city) government annual budget. The increase could be achieved by increments of several percentage points each year. The National Water Council could monitor progress. Allocating a larger budget directly to River Basin Organisations could also increase water users’ willingness to pay the water fee as the benefits become directly visible. It should be noted that, while the fee may provide additional financial resources to support water resources management, this is not its main purpose. Rather, it is an instrument that signals the value of water to consumers and users to rationalise their water demand.

• There could be benefits in cooperation and coordination on fee collection and inspection between the Water Agency, river basin organisation, aimags and soums. A water pact or agreement at sub catchment level could be a basis for cooperation in fee collection, albeit as a pilot. Several authorities are mandated with fee collection and inspections (2030 Water Resources Group, 2019[6]) at present. A role for USUG in the water use fee collection process could be considered as an opportunity, provided there is agreement on the fee collection process between USUG and the government authority in charge; transparency on the fees collected; and that the water use fee is transferred to its earmarked destination (including 35% for water management activities implemented by the River Basin Organisation as recommended above).

• Targets for fee collection and revenue transfers could also be set in the national and basin IWRM plans, monitored by the National Water Council. In Brazil, the National Water and Sanitation Agency (ANA) put in place a results-based water resources management through water pacts (“Progestão”) between ANA and federal states (OECD, 2017[8]; Libanio, 2014[29]). When federal states meet their water resources management targets, ANA provides a financial reward in return.

• Offering technical assistance to the Mongolian Tax Authority and to local tax administrations on environmental taxation, including on applying fees on water use and pollution, could be considered. One potential model is the OECD-UNDP Tax Inspectors Without Borders (TIWB) programme, which supports national tax authorities by embedding tax experts within their administration. These experts work directly with local auditors to strengthen enforcement of existing taxes. Through this programme, auditors gain particular expertise on documentation and audits methods, including those specific to environmental taxes.

• Water charges deliver best when aligned with water permits which are monitored and enforced. The new digital permit system is an opportunity to monitor compliance with abstraction and discharge permits, monitor fee payments and streamline fee collection processes. Sound inspection and control mechanisms, along with sanctions and penalties for non-compliance, could be strengthened to make the entire system more robust and credible. Section 2.3.4 discusses the water permit system.

Box 2.3. Budget allocation to river basin organisations in Mongolia

Mongolia counts 21 River Basin Organisations. These are small organisations, typically with less than 10 employees. While the Ministry of Environment and Climate Change has made good progress in supporting them with capacity development, river basin organisations still face challenges in accessing and maintaining high levels of expertise for location-specific technical, legal, and environmental needs. There is an important need for strengthening capacity and resources for planning and management, including access to specialist expertise, but also to foster a better understanding of groundwater and surface water management and development.

Formal funding sources of river basin organisations include state budget, royalties and licence fees for mining and exploration, water-pollution fees and taxes, own revenues and potentially those parts of the local budget that originate from earmarked water resource use fee revenues. In addition, 35% of the revenue of the water resource use fee is earmarked for environmental protection and natural resources restoration measures (Law of Mongolia on Fees for Natural Resources Use, 2022[10]), though in practice this target is not met.

Source: (Dombrowsky, Lkhagvadorj and Schoderer, 2018[30]).

2.3. Further developing water allocation practices in basins under pressure

Water allocation regimes help with managing the risks of water shortages and mediate between competing water uses. Water allocation regimes determine who is allowed to abstract water from a common resource pool, how much they may abstract and when, as well as how much must be returned (and of what quality), and the conditions associated with the use of this water.

This section describes current water allocation practices in Mongolia and makes recommendations to further refine the current practices. Even though “water allocation” is not referred to in Mongolia’s regulatory framework or the river basin planning guidelines, there are good practices in place which need to be built upon. This section discusses how these good practices can be further aligned with a sound water allocation regime, including through improving the permit system, understanding the water reserve and setting abstraction limits, identifying priority uses, and monitoring and enforcement. In the long term, water trading and other permit reforms, which require more granular water information, could be considered. The analysis is based on the OECD Water Allocation Health Check, an evaluation framework defined by the OECD to assess the development of water allocation regimes (Box 2.4) (OECD, 2015[31]; OECD, 2017[32]).

It should be noted that introducing water allocation regimes might not be necessary in all river basins and aquifers of Mongolia, as water demands are concentrated in several clusters across the country, such as the Selenge River, the Tuul River, the Buyant River, the Khar Lake (Khovd River Basin), the Kherlen River, the Orkhon River, and the South Gobi Desert basins. Emphasis may be put on basins and aquifers under pressure or basins and aquifers with projected water stresses. This is in line with international practices, as water allocation regimes often exist at different scales within national contexts. Some are defined at national level (e.g. Costa Rica, Estonia, Luxembourg, Slovenia, Switzerland), others at province/state level (e.g. Canada, Brazil), or at river basin scale (e.g. Australia, Colombia, Spain) (OECD, 2015[31]). Allocation regimes may differ for surface and ground water systems (e.g. Austria) (OECD, 2021[33]). In the early phases of developing water resources, a relatively simple design can be used. As scarcity increases and the value of water use rises, the benefits of a more sophisticated allocation regime increase (OECD, 2015[31]).

Box 2.4. Overview of the OECD Water Allocation Health Check

To analyse whether water allocation regimes are fit for the future and can deliver effective water allocation under normal conditions and in times of water scarcity, and to understand where improvements can be made, the OECD developed a Health Check for Water Resources Allocation and for Groundwater allocation. It is based on 14 questions:

1. Are there accountability mechanisms in place for the management of water allocation that are effective at a catchment or basin scale?

2. Is there a clear legal status for all water resources (surface and ground water and alternative sources of supply)?

3. Is the availability of water resources (surface water, groundwater and alternative sources of supply) and possible scarcity well-understood?

4. Is there an abstraction limit (“cap”) that reflects in situ requirements and sustainable use?

5. Is there an effective approach to enable efficient and fair management of the risk of shortage that ensures water for essential uses?

6. Are adequate arrangements in place for dealing with exceptional circumstances (such as drought or severe pollution events)?

7. Is there a process for dealing with new entrants and for increasing or varying existing entitlements?

8. Are there effective mechanisms for monitoring and enforcement, with clear and legally robust sanctions?

9. Are water infrastructures in place to store, treat and deliver water in order for the allocation regime to function effectively?

10. Is there policy coherence across sectors that affect water resources allocation?

11. Is there a clear legal definition of water entitlements?

12. Are appropriate water use fees in place for all users that reflect impact of the abstraction on resource availability for other users and the environment?

13. Are obligations related to return flows and discharges properly specified and enforced?

14. Does the system allow water users to reallocate water among themselves to improve the allocative efficiency of the regime?

Source: (OECD, 2015[31]; OECD, 2017[32]).

2.3.1. Strengthening water permits can support water allocation

Permits are essential to water allocation. In addition, they can support the collection of fees and charges (see Section 2.2). Mongolia’s existing water permit system is a good basis to support the further development of a water allocation regime.

Water resources are property of the State and can only be used with a permit granted by a relevant state authority (Constitution of Mongolia, 1992[34]; Law of Mongolia on Environmental Protection, 1995[35]). The Mongolian water permit system is based on volumetric limits on consumptive and non-consumptive uses. Water users must request a “conclusion” for water use, i.e. a water use permit based on a formal agreement between the competent authority and the user (Water Law, 2012[36]; UNECE, 2018[37]). These conclusions are based on absolute volumes of water that can be abstracted, which is common in water allocation regimes (OECD, 2015[31]).

Which authority is responsible for issuing the permit depends on the abstraction volume: the Water Agency is in charge for volumes above 100 m³/day; the River Basin Organisation for volumes between 50 and 100 m³/day; and the aimag for volumes below 50 m³/day (Figure 2.6). The volume abstracted per day must be specified in the conclusion (Water Law, 2012[36]). Conclusions are issued for up to 10 years, with the option of a 5-year extension if contract terms are met. Uses that require a permit include water use for energy, water transportation, rain and snow collection, digging channels and canals (Water Law, 2012[36]). Domestic water supply utilities also need to request a conclusion.

Figure 2.6. Steps and authorities for issuing water use permits

Source: based on authors’ interpretation of the roles and responsibility chapter of the Law on Water, Law on Natural Resources Use Fee.

The river basin planning guidelines could provide detailed guidance on water allocation regimes, covering how permit issuance and recording should be aligned with the water balance to avoid long-term over-allocation and how water should be allocated to different uses in the short-term (e.g., seasonally). The guidelines only stipulate how the water demand and supply balance is calculated every 10 years at the start of the IWRM planning cycle. However, this exercise requires a good understanding of the flow and water table, abstractions and strong communication with users at any point time. The basin planning guidelines could provide guidance on 1) the assessment of available water resources (surface and groundwater) for periods shorter than 10 years, e.g. seasonally, 2) the keeping of a database on available water resources with updated water quantity and water use amount data, and 3) a method for making decisions on permit issuance. This would also include a detailed record and registration of all water permits for each (sub-)basin and aquifer, with details on permitted abstraction volumes, the period during which the permit is valid, and, ideally, return flow obligations. This would also apply to permits issued by aimags and soums. Allocation models, such as the Water Evaluation And Planning System (“WEAP”), can support planning decisions. Monitoring and enforcement mechanisms to ensure that the permit conditions are met are critical, which is discussed in Section 2.3.4.

Water permits can also attract investments to Mongolia’s water sector, as investors sometimes require water permits to obtain credits, loans, capital or as requirements to start or add value to businesses (OECD, 2015[31]) (more on this in Chapter 3). In the São Francisco Basin and São Marcos Basin in Brazil, banks usually request water permits from users in order to issue loans. In the Parón River Sub-Basin of Peru, water licences guarantee the development of public and private investment projects (OECD, 2015[31]). To attract investments, the issuing of longer-term permits for long-term investments in sustainable water use could be considered, particularly for sustainable surface water development and storage facilities (see also Chapter 3). This is already practiced in Mongolia’s mining sector, where the water permit is issued for the duration of the mining permit and could be extended for investments that promote the sustainable use of water resources (Table 2.3).

Water permits are often granted with a limited duration to allow for revision of the conditions on the permit and to provide an opportunity to deny renewal. However, from the perspective of the water user, this can generate uncertainty. Limited time-bound duration of water entitlements can reduce incentives for long term investment and innovation in water-intensive activities (OECD, 2015[31]). To nudge investments in surface water development, long-term permits could be prioritised for sustainable surface water projects. Similarly, the duration of water permits could be diversified per sector. Table 2.3 shows examples of how permit durations vary across countries, varying from 6 months to in perpetuity.

Table 2.3. Periods of time water entitlements are granted for: selected examples

Example	Period of time water entitlements are granted for
Australia (Murray-Darling Basin)	In perpetuity, conditional on beneficial use.
Austria (surface and ground water systems)	No more than 90 years (e.g. for hydropower plants). 12 years: Maximum term of abstraction for irrigation purposes
Brazil (São Francisco Basin and São Marcos Basin)	10 years: Irrigation of areas up to 2.000 ha; industry with maximum withdraw flow of 1 m3/s; aquaculture; animal consumption; mining; others. 20 years: Irrigation of areas over 2.000 ha; industry with maximum withdraw flow over 1 m3/s. 35 years: Dams of flood control or hydropower generation and others hydraulic works; public water supply and sanitation.
Canada (Newfoundland and Labrador)	5 to 50 years: depending on user.
Chile (Limarí River Basin and Maipo River’s, 1st Section)	In perpetuity.
China (Yellow River Basin)	A term of a given number of years (e.g. 5-10) with the expectation of renewal.
Colombia (Ubaté-Suárez River Basin)	10 years: For concessions. Up to 50 years: For public services or the construction of public or social interest.
France (single collective management bodies for irrigation (OUGC))	Few years to several decades: Permanent use like drinking water abstraction. 6 months: Temporary uses (seasonal uses and/or irrigation).
Japan (Tone-Gawa River System)	A term of 10 years with the exception of 20 years for hydropower generation.
Korea (surface water systems under the River Act)	A term of 10 years with expectation of periodic renewal.
Luxembourg	A period of 5 to 20 years, which can be renewed.
Mexico	A term of 5 to 30 years, with the expectation of periodic renewal.
Mongolia	A tern up to 10 years, with the option of a 5-year extension for all applications. For strategic mineral deposit mining activities, water permit is issued for the same duration as the mining license.
New Zealand (Waikato Region)	A term of 15 years without expectation of renewal. However, under the Resource Management Act they can be issued for up to 35 years. Existing consent holders have the right to have an application for a new permit for the same activity to be considered before other applicants.
Peru	In perpetuity, but conditional upon continuity of activity.
Spain	A term of no more than 75 years.
United Kingdom (abstraction licensing system in England and Wales)	A term of 12 years, linked to cyclical reviews of water availability in a catchment, with the expectation of periodic renewal.

Source: (OECD, 2015[31]).

Improvements could be made by better delineating the responsibilities for issuing permits and monitoring. In Mongolia, as in most countries, the responsibility for water allocation is shared among several institutions, at various levels of government (national, state/provincial/regional, basin, and local) (OECD, 2015[31]). Collaboration between national institutions and the river basin organisations could be strengthened (ADB, 2020[38]). Cross-sectorial coordination at ministerial level, through the Water Council, could also be improved: water using sectors (MOFALI, MMHI) could align their development strategies and plans with the river basin IWRM plan, in line with the projected water availability and water use allocations (including environmental flows), and protection zones. This is particularly relevant for the development of a hydrogen industry (Box 2.6).

Sub-basin or aquifers under pressure could benefit from a cooperation agreement or a framework to clarify responsibilities and enhance collaboration between local governments. An interesting example is the Awash Basin, one of the largest and the most utilised river basins in Ethiopia, where government entities concluded a Water Cooperation Framework to improve water information and water allocation (Box 2.5). In the Mongolian context, the framework could, for example, cover issues such as the roles and responsibilities in the enforcement of water permits and water information management.

As responsibilities in water management are highly fragmented, overall policy implementation could benefit from strengthening coordination mechanisms, notably through the National Water Council. Strengthening the Water Council’s coordination mechanism can benefit integrated water resources management and pave the way for the timely approval of the national IWRM plan. Moreover, as the Council could provide further instructions on water demand management and water allocation processes. The Council may consider endorsing novel (pilot) approaches for water cooperation at sub catchment level, such as monitoring the impact of water framework cooperation agreements or water pacts. The Water Council could also take a role in tracking progress on fee collection and revenue distribution as many institutions are involved in the process.

Box 2.5. A sub-basin Water Cooperation Framework, Ethiopia

Government actors within the Awash-Awash sub-basin, Ethiopia, reached a significant milestone in 2021 by agreeing a Water Cooperation Framework for the Awash-Awash basin, a sub-catchment of the Awash River Basin. The Awash Basin is one of Ethiopia's largest and most utilised river basins. While an IWRM plan is in place, there was no sectoral integration of its implementation across the authorities responsible for its implementation: the Awash Basin Administration Office, five water bureaus of five regional states, and two city administrations.

The Awash-Awash sub-catchment was selected as a pilot for a Water Cooperation Framework, which can be scaled up to other sub catchments and with other partners in the future. This involved collaboration between two regional water bureaus and the Basin Administration Office.

The primary objectives of the agreement were to address water pollution, water scarcity, floods and water-related conflicts. Water resources management in the Awash basin also faced institutional challenges. Communication lines between regional water bureaus and the Basin Administration Office were inefficient, there was a lack of understanding between upstream and downstream water bureaus, information flows were limited, activities were duplicated, and local water forums frequently ended in disagreement.

The Cooperation Framework facilitated a process of collectively identifying the issues, mapping stakeholders, and assigning focal persons in each organisation. Building relations and teams across organisations, as well as securing political will, were essential steps of the process.

Source: Getachew Gizew, Project manager of the Dutch Water Authorities and former Head of the Awash Basin Development Authority; video on the Awash-Awash Basin Water Cooperation Framework Agreement Signing Ceremony (YouTube).

Box 2.6. Water for renewable hydrogen production in the South Gobi Desert

Renewable hydrogen, produced through water electrolysis powered by renewable electricity, is expected to play a critical role in abating emissions in heavy industries such as steel, cement and chemicals. Its potential for domestic renewable energy production at competitive cost makes Mongolia a potentially competitive renewable hydrogen producer, subject to several conditions, including the ability to satisfy the sector’s demand for water. As the government of Mongolia is developing a national hydrogen strategy, the OECD, under the Sustainable Infrastructure Programme in Asia, has assessed the national policy framework for developing renewable hydrogen.

The potential for renewable electricity production is highest in the Ömnögovi, Dundgovi and Dornogovi aimags in the South Gobi Desert. The region is already highly water stressed, relying on non-replenishable groundwater sources, and facing rising water demand from the mining sector. A small number of hydrogen projects are already under development in this region.

The OECD estimates that the production of 1 kg of renewable hydrogen in the South Gobi region will require 41.45 litres of groundwater. Based on this estimate, a local renewable hydrogen project targeting 1.5 KT of production capacity will demand 62 thousand m³ of water. Scaling-up the annual production of renewable hydrogen to 1 MT (the 2030 target of Chile, which is looking to position itself as a competitive exporter), would require 41,455 thousand m³ of water, which is equal to the expected water demand for the mining sector by 2030. Hence, the development of a renewable hydrogen sector of 1 MT by 2030 would double the total industrial water demand compared to current forecasts.

In conclusion, meeting the water demand for the first stages of development of pilot projects already seems potentially challenging. While the amount of water required could be considered negligible when compared to other uses, the water required for renewable hydrogen production will likely need to be withdrawn from aquifers already under stress. To anticipate and manage new water demand for renewable hydrogen sustainably, the OECD study recommends:

• Integrating water sustainability as a central pillar of a national renewable hydrogen strategy. This means including the effects of industry scale-up on the water sector in any discussion of future production targets; monitoring and developing data for water use and standards in renewable hydrogen production; stimulating water management knowledge transfer from the mining sector to the renewable hydrogen sector; and integrating water efficiency and supporting innovation, as well as in project appraisal.

• Embedding industrial water use policies that support sustainable access to, and use of, water into the broader national water management framework. Measures include improving cross-sectoral co-ordination at the national level; enhancing institutional capabilities with a particular focus on RBOs; ensuring effective multistakeholder dialogue as part of strengthened Strategic Environmental and Environmental Impact Assessments; improving water data systems; and considering revisions to water tariffs in water allocation regimes, to incentivise water efficiency and address water pollution.

• Explore opportunities and plan for co-ordinated water and renewable hydrogen infrastructure development. Mongolia could explore opportunities for wastewater treatment and re-use. Following examples in OECD countries such as Australia and Spain, plans could also follow the model of “hubs” involving the co-location of water, hydrogen and industrial (e.g. mining) infrastructure. This model could enable the realisation of agglomeration economies and cost-sharing benefits and encourage a circular economy approach at the local level.

Source: Towards a National Renewable Hydrogen Strategy in Mongolia (OECD, Forthcoming).

2.3.2. Understanding the available water resources pool and setting abstraction limits

Understanding the water reserve

Understanding the water reserve or “water resource pool”, at a (sub)basin or aquifer scale, helps determine how much water can be sustainably allocated and used. Mongolia’s Water Law stipulates that the Water Agency publishes an annual report on the national water reserve and water consumption (Water Law, 2012[36]; National Statistics Office of Mongolia, 2023[39]). The 2022 Water Account provides, at national level, annual data on water reserves, total water use by sector, total water supply by sector and water use efficiency (National Statistics Office of Mongolia, 2023[40]) based on the Water Agency’s data on water availability and use by sectors. Similarly, River Basin Organisations and local administrative organisations are requested by law to carry out a joint annual water inventory of the basin area (Water Law, 2012[36]). Basin plans include water use balances at sub-catchment level (Ministerial Order No 42, 2020[41]).

Information on water reserves is currently not sufficient to guide adequate water allocation decisions. The annual report on total water resources has not been updated by the Water Agency since 2021. The total water reserve of Mongolia as 564.8 million m³ is often cited and taken from the environmental baseline report published by the Ministry of Environment and Climate Change, which has not been updated since 2020. Surface water monitoring carried out by RBOs include the counting of water bodies and describing their status, whether dry or restored or with flow, but the actual flow amount is not registered. Currently, there is no agreed methodology for calculating the overall amount of water available for use and for consumption after accounting for the needs of environmental flows. Clarity on methodologies is particularly important given the uncertainty of future water resource availability under climate change scenarios, as well as national goals to reduce dependency on groundwater resources by shifting to surface water (World Bank, 2024[5]). 

Groundwater data is imperfect and could impact the total reserve estimate (2030 Water Resources Group, 2014[3]). There are not enough monitoring points for groundwater monitoring (UNECE, 2018[37]), and there are many unauthorised wells, notably in the Ulaanbaatar region. Moreover, only 14% of the total area planned for hydrogeological medium-scale mapping with groundwater deposit information has been completed as of 2023. This highlights the benefits of increasing hydrogeological surveys to quantify the country’s groundwater reserves. It must be noted that setting up a groundwater knowledge base and monitoring system is a challenge in many parts of the world, due to costs, the complexity of groundwater behaviour, and the invisibility of the resource (Unesco, UN-Water and Programme, 2022[42]).

It could be worth exploring whether certain aquifers could be jointly mapped and managed by civil society and government, for instance through groundwater management agreements. In France, several aquifers are managed through such groundwater management agreements (Box 2.7). These agreements may initially focus on monitoring and developing a common understanding of groundwater reserves. In a subsequent phase, these agreements can focus on restoration efforts and collective management of the resources.

Box 2.7. Voluntary groundwater management contracts in France

In France, “groundwater management contracts” (contrats de nappe) between various stakeholders who collectively depend on an aquifer are used to coordinate aquifer management and protect water quality. Stakeholders could include farmers, municipalities, drinking water companies, industries and environmental NGOs. Through the groundwater management contract, stakeholders jointly plan and invest in aquifer management. The activities often also focus on land use. The aquifer is usually managed by a public association.

The Champigny aquifer is one of the main water resources of the Paris region. The aquifer is managed trough a groundwater management contract by the AQUI’Brie association, consisting of around 30 members from water companies, agriculture, industry, research, goverment and environmental NGOs.

For instance, the groundwater management contract for the La Crau region contains very concrete actions for sustainable water allocation and maintenance of the groundwater table, including groundwater surveys and modelling, installing metres for agricultural users, water supply network maintenance and developing a joint crisis management plan. A separate association takes care of the day-to-day management on behalf of the AQUI’Brie Association.

Source: (Tournebize et al., 2012[43]; Syncrau, 2016[44]).

Setting long-term and short-term abstraction limits

Water allocation regimes usually comprise two types of abstraction limits (OECD, 2015[31]):

• A long-term limit defines the maximum volume of water that can be abstracted at any point in time. Once this limit has been fully allocated, no new permits should be issued unless someone else’s permit is reduced by an equivalent amount. The long-term limit can be used to guide strategic water-dependent investments.

• A short-term limit on the amount of water that can be taken at a particular point in time, for instance, within a season. In the definition of a short-term limit, one must take into account the time needed for water users (including irrigators) to adjust. For instance, the short-term limit needs to be determined and announced in advance of the planting season if it is to influence cropping decisions.

Mongolia has limited experience with setting short-term abstraction limits and seasonal allocation strategies, even though the country is highly dependent on seasonal variabilities. Short-term limits are further described in the section 2.3.3 on priority uses. The Ministry of Environment and Climate Change is responsible for setting the long-term maximum abstraction limits for each basin, based on hydrological, ecological and economic research. The abstraction limit (“cap”), which puts aside a certain amount of water that cannot be used or consumed of the total volume of abstractions, is defined by environmental flows that include downstream obligations. The volume of water that can be abstracted for use and consumption from surface and groundwater sources is estimated at river basin level (Government of Mongolia, 2012[45]). Previous major studies on the long-term abstraction limits have considered total water resources in dry years and subtracted environmental flow requirements (Government of Mongolia, 2012[45]; 2030 Water Resources Group, 2016[46]). The abstraction cap for groundwater is calculated with a formal methodology based on hydrogeological surveys (Government of Mongolia, 2015[47]). However, comprehensive hydrogeological surveys are rarely done in Mongolia, and as of 2022, only 16.6% of the country’s territory had been surveyed, mainly in Southern Gobi and Ulaanbaatar (Boldbaatar, 2023[48]).

Without having a realistic limit on water abstractions that reflect available reserves and sustainable use in a given basin, only few effective measures can be implemented to address future water insecurity. The OECD water allocation guidance identifies the following parameters that can support the definition of the total abstraction limit in a basin (“cap”):

• Downstream obligations: may determine minimum flows for transboundary rivers (in the case of surface water).

• Environmental needs: environmental flows are needed to meet ecological objectives, but also to protect downstream users.

• Needs for non-consumptive uses: such as swimming, boating, water skiing, fishing, maintenance of stream related fish and wildlife habitat, and hydropower generation.

• Technical restrictions: may limit economically viable water use, i.e., there may be technical barriers that limit the possibilities to abstract water at reasonable cost.

• Other requirements: in situ requirements, obligations, indigenous rights.

• Quality requirements, including temperature.

Mongolia’s existing environmental flow requirements and groundwater protection zones provide a good foundation for water resources protection and serve as long-term abstraction limits, provided they are enforced. The environmental flow requirements for surface water in Mongolia are stringent, ranging from 90% to 95% of the long-term average flows (ADB, 2020[38]). These requirements translate into abstraction caps of 5% to 10% of the long-term average flows. However, abstractions in some basins have already exceeded the 10% threshold (ADB, 2020[38]). As for groundwater, the use of groundwater is permitted within 40 to 60 % of the aquifer reserves (2030 Water Resources Group, 2014[3]). As groundwater and surface water are hydrologically connected, abstraction limits ideally take this connectivity into account to avoid unintended overuse of one water resource by using another resource. In Mongolia, groundwater and surface water interconnectivity is managed through water protection zones within at least 50, and up to 200, metres from the riverbanks (2030 Water Resources Group, 2014[3]; Water Law, 2012[36]). Mineral exploration and mineral mining are prohibited at headwaters of rivers and protected zones of reservoirs, with the exact boundaries to be determined by the Government (Law to prohibit mineral exploration and mining operations at headwaters of rivers, 2009[49]). However, stakeholders mention that these zones could benefit from stricter enforcement as they are frequently disregarded and more water protection zones.

Infrastructure to control and allocate surface water is minimal in Mongolia at present, though plans contained in Vision 2050 are looking to significantly increase water storage in the period 2031-2040 (Government of Mongolia, 2020[50]). Water infrastructure support water allocation through enabling storage, treatment and delivery of water to various water uses and users. Inadequate infrastructure can place constraints on the flexibility of allocation regimes (OECD, 2015[31]). Development of multipurpose dams and aquifer recharge infrastructure is mostly in the design stages at present, due to limited financial resources, technical capacity, and restrictions posed by transboundary allocation arrangements (Fan, 2023[51]; McKinney and Rycewicz, 2019[52]). Chapter 3 provides further recommendations on financing water storage infrastructure.

2.3.3. Priority uses could be further defined

Most allocation regimes have an established sequence of priority uses to determine which sectors or uses have priority over other uses in times of water scarcity (Figure 2.7). Mongolia’s water policies and regulations have defined “the safety of the population’s water supply” as the highest priority, based on which the State can withdraw all other water use rights. The aimag administrations, together with the Ministry of Environment and Climate Change, can define the degree of drought for the ongoing year and prepare mitigation and adaptation plans (Water Law, 2012[36]). In case of force majeure during the ongoing year, the Water Agency has a right to temporary reallocate water permits and enable more water resources to be assigned for drinking and household purposes.

In the future, priority arrangements for dealing with exceptional circumstances, such as drought or severe pollution events, could be further defined if competition between water users increases or if shortages become more frequent. “Essential”, high value water uses, such as drinking water for households, already have a priority status by law. Some water allocation schemes, such as the São Marcos basin in Brazil, also prioritise animal water consumption, an approach that could make sense in the context of Mongolia given the importance of livestock for livelihoods in the country (OECD, 2015[31]). Some schemes prioritise environmental allocations before agricultural and industrial uses, such as the Murray-Darling Basin, Australia, the Páron River sub basin, Peru, and France (see Figure 2.7).

USUG may have a role to play in prioritising water allocations during shortages, for instance when it needs to restrict delivery to its for-profit clients during droughts. More generally, USUG could consider the implementation of water demand management measures in line with national water allocation principles and IWRM strategies (Box 2.8).

As water demands are concentrated in several clusters across the country, such as the Selenge, Tuul, Khovd, Kherlen, Ongi, Baidrag and Orkhon river basins, as well as the South Gobi Desert aquifers, risk management strategies could focus on these basin areas. Initiatives to bring stakeholders together to manage the resources could enhance risk management and adaptability during droughts, such as the Awash Cooperation Framework in Ethiopia (Box 2.5) or groundwater management contracts in France (Box 2.7). Different approaches may work in different basins.

Box 2.8. Water demand management instruments for water service providers

Water consumption will continue to increase in Ulaanbaatar (Ministry of Environment and Green Development, 2013[11]). USUG, in charge of bulk water supply and wastewater treatment in the Ulaanbaatar metropolitan area, has been focusing on water demand management strategies since 2022, including reducing and controlling water losses, improving the precision of the existing water meters, and overall alignment with Mongolia’s IWRM plan. USUG aims to increase water consumption in underserviced ger districts to meet basic human needs. At the same time, it aims to manage the high water consumption levels in already well-serviced areas (2030 Water Resources Group, 2019[6]).

A Water Demand Management Plan could guide USUG in its water demand strategy. There are numerous examples of such plans, such as Singapore, the Pacific Community guidelines, Barcelona, Cape Town, San Francisco (Ong, Tortajada and Arora, 2023[53]; Water Research Commission, 2018[54]; Tortajada et al., 2019[55]). Water demand management instruments may include:

• Addressing water losses.

• Applying economic instruments, including water tariffs, to address water consumption. Though there are limitations as non-residential water demands are relatively inelastic in Ulaanbaatar (Altai, 2013[56]).

• Reducing household water consumption. Such strategies could focus on large consumers, such as high consumption apartment buildings, as well as for-profit uses. Measure to reduce consumption should avoid that users resort to (illegal) alternative water sources, such as unauthorised wells.

• Water conservation measures, including campaigns. In Ulaanbaatar, the campaign should be two-pronged: encouraging water conservation by high consumption customers while stimulating water consumption of underserviced customers, particularly in Ger districts.

• Alternative supply systems, such as treated wastewater use or desalination (see Section 2.4.)

Source: (Ong, Tortajada and Arora, 2023[53]; Tortajada et al., 2019[55]; 2030 Water Resources Group, 2019[6]; Water Research Commission, 2018[54]; Altai, 2013[56]; Ministry of Environment and Green Development, 2013[11]).

Figure 2.7. Sequence of priority uses in water allocation among selected countries

Source: (OECD, 2021[33]).

2.3.4. Monitoring and enforcement of water permits is a key challenge

Strong enforcement is needed to ensure that allocation rules are effectively applied in practice. However, enforcement is one of the challenges faced by Mongolia’s water sector (2030 Water Resources Group, 2014[3]). For instance, stakeholders highlighted the issue of a growing number of unauthorised and unregistered wells, notably in the Ulaanbaatar region. Data management, drawing up an inventory of wells, and providing financing for well-drilling only to entities that have obtained appropriate permits for doing so could support the enforcement of water permits (Chapter 4). The installation of water meters is required by and specified in specified in the Law on Water, however, in practice is not fully implemented.

It could be worth considering providing River Basin Organisations with additional instruments to address non-payment, such as fines or revoking permits, with special conditions for (vulnerable) groups who are unable to pay the fee. At the moment, river basin organisations have limited tools to enforce permits and water fee payments beyond going to court, which is often unsuccessful, especially if the other party is a large private sector organisation or backed up by political forces. As discussed in Section 2.2.3, strengthening the financial position of River Basin Organisations can also improve enforcement.

Reinforcing coordination and cooperation at local level, such as by coordinating or even consolidating inspections, can improve the enforcement of water permits. The Water Cooperation Framework between government entities in the Awash Basin in Ethiopia (mentioned above) could serve as an approach to improve enforcement. For instance, Mongolia could pilot such a framework at a very local level, e.g. around a lake, tributary, in a settlement, or a sub basin. Such a framework may focus on effective cooperation between the Water Agency, river basin organisation, aimags, soums and water service providers on topics such as coordinating and consolidating inspections or decentralising fee collection.

The newly introduced integrated, digital permit system can also significantly support water allocation decisions, monitoring and enforcement. On 1 March 2024, Mongolia’s water permit system went fully digital, integrating the water databases of the Ministry of Environment and Climate Change and the Water Agency. The current system records large abstractions (>100 m³/day), which could gradually be extended to include smaller abstractions, typically issued by aimags and soums.

2.3.5. Water trading and permit reforms may be considered in the future

Some allocation regimes allow some form of trading, leasing or transferring water entitlements among users. In Mongolia, a more sophisticated allocation scheme, based on fully developed water markets may be considered in the long-term future and under certain conditions (Box 2.1). Instead of issuing new permits, trading or transfer of water licences could be considered in water scarce aquifers, such as the South Gobi desert, to incentivise water saving. The mining sector, for instance, may have bandwidth for water trading, as it only uses a proportion of water allocated in the water permit (Figure 2.8) (EITI, 2020[57]; EITI, 2021[58]; EITI, 2022[59]). Trading or transferring water licences can be administratively costly and challenging to put in place, thereby posing additional burden on public budget. Some water trading schemes requires the participants to the scheme (permit holders) to cover administrative costs. For example, in New South Wales, Australia, the "salt credits" trading scheme for managing salinity in the Hunter River Catchment charges credit holders for the administrative costs at each credit auction, which occurs every two years (NSW EPA, 2003[60]). Trading also requires water registers and a deep understanding of water use (see Box 2.9).

Figure 2.8. Proportion of water used against volume of water licenced in the mining sector

Note: The number of reporting companies increased from 19 in 2019 to 63 in 2021.

Source: (EITI, 2020[57]; EITI, 2021[58]; EITI, 2022[59]).

In the long term, Mongolia could consider also issuing water conclusions as a share (percentage) of available resources rather than as an absolute volume of water that can be abstracted, with minimum abstraction guarantees for essential uses. This provides more flexibility to adjust the amount of water that can be abstracted in line with the availability of water resources and priority uses, without the need to amend the water permit (OECD, 2015[31]; OECD, 2024[61]). As with water trading, this requires a thorough understanding of water uses, such as through metering.

Box 2.9. Allocation through water markets: an option for the future?

Water markets are one method of water allocation. As Mongolia considers water allocation frameworks in scarce basins, water markets might be viable in the future as scarcity becomes more acute. This box draws on experiences from Australia’s Murray-Darling Basin formalised water trading scheme (or “water market”). Water markets empower water users to make complex decisions regarding the allocation of water. Prices reflect changes in demand and supply of water entitlement, influenced by climatic conditions, commodity markets, current and expected level of allocations (including unused allocations at the end of the water year) and changes in rules (OECD, 2015[31]).

Water markets are a sophisticated method of water allocation. They only work when several conditions are met:

• There must be a situation of water scarcity within a given water system.

• Water variability across seasons or years is observed.

• Connected water systems are in place, either through hydrology or infrastructure.

• A sufficient pool of water users exists to allow for water trading activities between users.

• There are different water demands amongst users.

• Increasing or changing demand: a market system provides most significant benefits with increasing demands.

Certain preconditions, including several no-regret measures, of water allocation must also be in place before developing a mature water market. These foundational elements are crucial for ensuring the success of water markets and contribute to overall improvements in water management. This includes having clearly defined water entitlements, metering systems that monitor, account, and report on water availability and use, and adequate governance and regulation systems. Once these basic elements are in place, water market-specific elements can be introduced:

• Set a cap that limits total water abstractions.

• Define tradeable water rights for each user groups.

• Introduce trading and pricing mechanisms.

• Refine water registers and accounting, including telemetric metering to ensure compliance.

Source: Based on the presentation “Australian water sector reform: Efficient and sustainable outcomes through water allocation and water markets” at the Policy Seminar of the National Dialogue on Water by Ryan Gormly (Ricardo; this presentation was made in April 2024 under the company name Aither).

2.3.6. Recommendations on water allocation regimes in Mongolia

Mongolia has many elements of water allocation systems in place. The system could be further strengthened to manage short- and long-term water demands in basins under pressure from water stress. Good practices to continue are:

• When administered well, Mongolia’s water permits (“conclusions”) can provide a good basis for water allocation decisions.

• The new, centralised digital permit system by the Ministry of Environment and Climate Change and the Water Agency provides a strong basis for defining and enforcing water abstraction rights.

• Over the past few years, Mongolia has made significant steps in strengthening economic instruments for water demand management. Pollution and abstraction charges could be further enhanced to manage water demand and pollution.

Furthermore, Mongolia could consider initiating several actions to strengthen the water allocation system:

• Prioritise the introduction of water allocation regimes in basins where water supply does not meet current or projected water demands (temporarily or structurally) and where there is a functioning river basin organisation.

• The national IWRM plan and the river basin planning guidelines could provide guidance on water allocation processes, detailing how permit issuance should be aligned with the water balance to avoid long-term over-allocation and on how water should be allocated to different uses in the short-term (e.g., seasonally).

• Coordinated enforcement and management at local level could be beneficial. Cooperation framework agreements between all government entities involved can delineate and consolidate responsibilities such as for monitoring, inspections and fee collection.

• Environmental flows have been set and provide sufficient guidance in the determination of abstraction caps. Further refinement of environmental flows may be necessary in the future. Groundwater abstraction caps may be reviewed to avoid overallocation of aquifers.

• Define a process for setting short-term abstraction limits (e.g., within a season) during periods of water stress, considering the time needed for water users to adjust (e.g. crop planting decisions). A ladder of priority uses could support this process. The Water Agency, River Basin Organisations, aimags and soums will need to be equipped to enforce such permits by metering compliance and having tools in place to sanction water users in case of non-compliance.

• Strengthening the financial position of River Basin Organisations can improve permit enforcement. Actions could include gradually achieving the transfer of the earmarked revenue (35%) to the river basin organisations, coordinated and consolidated fee collection, and providing additional sanction tools to address non-payment of water fees. The National Water Council could oversee progress.

• Maximise the benefits of the new digital permit system by integrating and continuously updating all surface water and groundwater data and water level information, and gradually document smaller abstraction permits (< 100 m³/day), typically issued by aimags and soums.

• Address gaps in groundwater data and information, including unauthorised and unregistered wells, as these may impact the total groundwater reserve estimate, in turn leading to over-allocation of groundwater sources. Data management, drawing up and maintaining an inventory of wells, and providing financing for well-drilling only to entities that have obtained appropriate permits for doing so could support the enforcement of water permits. Surface water data in (sub) basins could benefit from enhanced granularity as well.

• Strengthen collaboration between national and subnational institutions and the river basin organisations.

Lastly, in the long-term and through a robust stakeholder engagement process, several actions could be considered to develop an advanced water allocation system:

• Define and enter into water management agreements between civil society and government authorities involved in water management at catchment or sub catchment level (typically the Water Agency, River Basin Authority, and the water departments of aimags and soums) so as to enhance coordination, water reserve information, allocation decisions, and catchment management.

• Review the permit system on aspects of duration, e.g. issuing longer-term permits that exceed the current 10-year term to facilitate long-term sustainable investments in surface water development, and abstraction volumes, e.g. as a share (percentage) of available resources rather than an absolute volume.

• Develop infrastructure for water storage and water conveyance, when economically, financially, socially and environmentally viable.

• Increase financial and human resources for river basin organisations, as RBOS have critical responsibilities in the water allocation process (relating to policy implementation, planning, issuing water entitlements, as well as monitoring and enforcement).

• Strengthen arrangements for dealing with exceptional circumstances, such as drought or severe pollution events, by defining a sequence of priority uses.

• Integrate water allocation processes for long-term and short-term allocation in the national IWRM plan, basin plans, and the basin planning guidelines. This may include institutional roles and responsibilities, stakeholder engagement and conflict management, assessment of the state of water resources including current water use and entitlements, water use projections per sector and basin/aquifer, water monitoring and information, financing, and capacity building needs (see, e.g., (Awash Basin Authority, 2017[62]).

• Consider trading of water permits (“water markets”) in the longer term in basins with scarcity, if the fundamental conditions for water allocation regimes have been met, including (a register of) water permits, data and information, monitoring and enforcement, stakeholder engagement mechanisms, and a regulatory framework for water allocation.

2.4. Increasing water supply through wastewater treatment and reuse

Reducing pollution and promoting wastewater reuse can boost the availability of reliable water resources. In Mongolia, severe water pollution has triggered the need to explore additional water resources, including reuse of treated wastewater (as encouraged through the Wastewater Recycling Activity of the Millenium Challenge Account). Combined Heat and Power plants in Ulaanbaatar consume 21 million m³ of groundwater annually, primarily for cooling, which accounts for 23.8% of the city's total water use. Of this, 15 million m³ (70%) is used for cooling, cleaning, and ash removal. Recycling wastewater could reduce freshwater demand by up to 18.3 million m³/year.

Pretreatment of the industrial wastewater is required before being discharged to the public water treatment facilities for further treatment (2030 Water Resources Group, 2016[46]). However, some public water treatment infrastructure is outdated and has been degrading with time. Activities associated with pollution in Ulaanbaatar are biomanufacturing, wool and textile manufacturing, leather, petroleum production, poultry and meat processing, mining and coal production, urban wastewater, livestock (ADB, 2020[38]) (correspondence with stakeholders). Insufficient or no treatment of wastewater increase water availability challenges downstream, which is the case with large rivers such as Tuul.

The following sections discuss how Best Available Techniques for industrial wastewater discharge could be introduced to reduce industrial pollution and how supply and demand for treated wastewater use could be stimulated.

2.4.1. Setting clear standards for industrial emissions by identifying Best Available Techniques

Incentives to upgrade wastewater treatment and water efficiency of industries could be strengthened (WWF, 2019[63]; ADB, 2020[38]). In 2023, the Government adopted new wastewater quality standards, guidelines and manuals. Stakeholders face challenges in complying with the new guidelines as it is not clear which technologies are compliant with the water quality standards. Moreover, some companies are interested in investing in environmentally friendly technologies but struggle to identify options that are suitable for their specific needs (2030 Water Resources Group, 2014, p. 25[3]).

As an additional policy, Mongolia could consider identifying Best Available Techniques (BAT) for industrial wastewater treatment to ensure industry compliance with water quality standards. BAT are complementary to existing laws and regulations on environmental quality standards and industrial pollution. A comprehensive strategy should be developed to encourage reuse of treated wastewater, within which BAT-based approaches could figure prominently.

BAT-based approaches define the best technology options for wastewater treatment. The definition included in the European Union Industrial Emissions Directive (2010/75/EU) provides an example of how BAT is understood in most countries (OECD, 2017[64]). According to the Directive, ‘Best available techniques’ refer to the most effective and advanced stage in the development of activities and their methods of operation, which indicates the practical suitability of particular techniques for providing the basis for emission limit values and other permit conditions designed to prevent and, where that is not practicable, to reduce emissions and the impact on the environment as a whole. Put simply:

• Best: the technology that is the most effective and advanced to prevent or reduce harmful emissions into the environment.

• Available: the technology should be available in the country (in this case: Mongolia) as well as affordable.

• Techniques: refers to the technology, such as a wastewater treatment facility, as well as good the operation and maintenance of the technology.

One of the advantages of BAT is that it gives industrial facilities the freedom to choose their preferred means to achieve environmental quality standards and discharge permit conditions, using BAT as a guiding – rather than prescriptive – policy tool (OECD, 2019[65]). Determination of BAT is typically done in consultation with industry stakeholders (OECD, 2018[66]). Moreover, BAT may encourage investment in wastewater treatment technologies as they can help banks target their investments towards a government and industry-endorsed list of technologies.

Process of developing BAT-based guidance documents

BAT-based approaches result in the development of guidance documents that assist industrial operators with the design, operation, maintenance and decommission of manufacturing plants in compliance with environmental quality standards and discharge permit conditions (which are legally binding) to prevent or control emissions to air, soil and water (OECD, 2019[65]). Depending on the context and country, BAT Reference documents are typically updated every 10 years.

Determination of BAT is often done in consultation with stakeholders, for instance through multi-stakeholder groups representing government, industry and NGOs (OECD, 2018[66]). Technical and environmental aspects are taken into account as part of the evaluation of techniques, and in most cases economic aspects (i.e., based on a cost-benefit analysis) are also taken into consideration. As BAT are country-specific, only those technologies that are accessible and financially viable within the jurisdiction, are listed in the guidance documents. Generally, BAT and permit conditions are determined in four steps (OECD, n.d.[67]):

1. Information collection: on a specific industry, information is collected on pollution prevention and control techniques, emission and consumption levels, and important contextual information.

2. Evaluation of techniques and data: the data on techniques and other relevant elements are evaluated, considering technical, environmental and economic criteria.

3. BAT Reference documents: BAT and associated environmental performance levels, including emission levels, are established and presented in BAT Reference Documents.

4. Environmental permits: permit authorities translate the BAT Reference Documents into environmental permit conditions, including emission limit values.

Sectors that could benefit from BAT-based guidance documents

BAT typically applies to specific sectors or activities, such as agriculture, forestry, food, gas and oil, mining, iron and steel, chemicals, cement, paper and pulp, power plants, construction materials, infrastructure or waste. The sectors covered by BAT-based guidance documents depend on the country (OECD, 2017[64]). Table 2.4 provides a catalogue of BAT guidance documents from the cement, meat, mining and textiles industry.

Table 2.4. Examples of Best Available Techniques Guidance documents from select countries

Industry	BAT guidance document example
Beverage	Beverage Processing Breweries, World Bank Group
Cement	Production of Cement, Lime and Magnesium Oxide, European Commission Production of cement, Russia Cement manufacturing effluent guidelines (Water), United States EPA
Meat	Meat and Poultry Products Effluent Guidelines, (covers wastewater directly discharged by slaughterhouses, further processors, independent renderers and poultry processors) United States Environmental Protection Agency (EPA) Slaughter House, Meat and Sea Food Processing, India Slaughterhouses (meat-processing plants and combined slaughterhouses, refrigeration, and storing of meat plants) and animals by-products industries, Russia
Mining	Coal mining and processing, Russia Precious metals mining, Russia Mineral mining and processing (Water), United States EPA Mining and processing coal (Water), United States EPA
Textiles	Textiles Industry, European Commission Textiles industry (washing, bleaching, mercerizing, Dying of textile fibres; bleaching, dying of textile products), Russia Textiles (Water), United States EPA Dyeing and Finishing of Textile Industry, China

Note: Not all BAT guidance documents are specifically relevant for emissions into water. Some BAT guidance documents emphasise water consumption.

Source: (OECD, n.d.[68]).

BAT-based guidance documents can cover industrial emissions to air, water, and soil (OECD, 2017[64]). Some BAT-guidance documents also cover water consumption, such as the optimisation of water consumption in operations or the reusing or recycling of water (OECD, 2022[69]).

2.4.2. Stimulating supply and demand for treated wastewater

Treated wastewater can be a reliable alternative water source in water-scarce regions. Building on current experience with wastewater reuse, this section provides some recommendations to further strengthen Mongolia’s approach. In Mongolia, potential uses for treated wastewater include (2030 Water Resources Group, 2020[70]; 2030 Water Resources Group, 2016[46]) (ADB, 2023[71]):

• Industrial uses, such as cooling water for Combined Heat and Power Plants, the textile industry, and carwashing.

• Managed aquifer recharge (MAR).

• Landscape uses such as the irrigation of public parks and water for firefighting.

• Agricultural uses for livestock consumption specifically.

Only a small proportion of treated wastewater is currently reused, including for toilet flushing, car washing, or landscape irrigation. The mining, food & beverage industries are the most prominent producers of wastewater that could be leveraged for a potential reuse strategy in Mongolia (2030 Water Resources Group, 2020[70]; 2030 Water Resources Group, 2016[46]). Selected companies already engage in wastewater treatment and reuse, especially those in the beverage and food industries (2030 Water Resources Group, 2016[46]). There are a handful of recycled wastewater reallocation schemes which are getting close to implementation, including treated wastewater of a beverage company being conveyed to a nearby heating plant in Ulaanbaatar city. A larger scheme is being implemented by the Millennium Challenge Corporation through the Water Compact agreement between the Government of Mongolia and the US Government. Similarly, the Asian Development Bank’s study identified potential sites for Managed Aquifer Recharge (MAR) for domestic and mine water supply next to major mining and industrial borehole fields in Mongolia (ADB, 2023[71]).

International experience shows that facilitating wastewater reuse should carefully consider the following enabling conditions:

• Adequate regulations for water quality standards or water treatment requirements, such as the number of treatment steps, to ensure the protection of public health and the environment. These standards depend on the intended use for the treated wastewater, with some uses or ecosystems requiring higher treatment standards than other. Adequate water treatment infrastructure with sufficient capacity are required to enable compliance with regulations.

• Stable and continuous supply and demand for treated wastewater. The potential quantities of water to be recycled and delivered should be quantified, and a relatively close distance between the treatment facilities and the consumer of the reused water is needed to be cost-effective.

• Careful consideration of negative externalities of a reuse strategy. This includes potential trade barriers for imported products with more stringent water treatment requirements, decreased environmental flows induced by diverting the outflowing water from treatment plants, and required energy resources as well as greenhouse gas emissions.

• Determining the financing sources for developing and implementing a reuse strategy, including to cover the development, operation, and maintenance costs. The large potential of the private sector to play a role in financing water reuse, notably through public-private schemes should be considered. Financial incentives and political support by the government contribute to a successful reuse strategy.

• Established systems for control and monitoring to ensure safe use of the treated wastewater for people and the environment and compliance by the operator with legal obligations.

Regulatory framework and standards for wastewater reuse

In Mongolia, adequate regulations for water quality standards and treatment requirements for water reuse have been in place since 2018, through the National Standards for Treated Wastewater Reuse (MNS6734:2018) approved by the Mongolian Agency for Standards and Metrology (2030 Water Resources Group, 2020[70]). The National Standard provides guidelines on the treatment level of wastewater depending on its end use. It is crucial that these guidelines are enforced by the government to ensure compliance by the operators. In practice, the guidelines on permissive levels are too broad for specific end-users.

The study conducted by the WRG further emphasised the benefits of a legal and regulatory framework based on a risk management approach for wastewater reuse (2030 Water Resources Group, 2016[46]). International standards additionally exist for regulating treated wastewater reuse for different purposes (Table 2.5).

Table 2.5. Examples of international standards for treated wastewater reuse

Sector using the treated wastewater	Standard or guidance document
Industry	Water Reuse for Industrial Applications Resources | US EPA, United States EPA
Groundwater recharge	Minimum quality requirements for water reuse in agricultural irrigation and aquifer rechargeNote 1, Joint Research Centre of the European Commission
Landscape Irrigation	Reusing Water for Landscaping Resources | US EPA, United States EPA
Agricultural Irrigation	Regulation 2020/741 on Minimum Requirements for Water Reuse, European Union ISO 16075-3:2021 - Guidelines for treated wastewater use for irrigation projects, ISO Wastewater quality guidelines for agricultural use, FAO Guidelines for the safe use of wastewater, excreta and greywater, WHO
Livestock consumption	Water Reuse for Consumption by Livestock Resources, United States EPA

Note¹: This report serves as a science-policy document rather than an official standard.

Source: (Leonard, Russell and Cressey, 2023[72]).

An effluent treatment plant for clustered industries could allow for greater wastewater reuse, especially in highly industrialised areas. In this context, mapping out locations where the continuity of wastewater supply and demand (which may include aquifer recharge) is guaranteed may be useful, as well as determining distances between them. Cros-sectoral planning of wastewater reuse has benefits, as industry-to-industry systems face limitations. Land permits and space are some of the main challenges in Ulaanbaatar to develop joint treatment plants for several companies from the same industry or sector. Moreover, estimates show that 81 million m³/ year of water would remain unused in a closed-loop system (2030 Water Resources Group, 2016[46]).

The question of ownership of the reuse facilities is high on the agenda in Mongolia. Discussions on private sector cooperation and joint investments have raised questions about who will be responsible for the operation and maintenance (O&M) of the infrastructure and how to ensure long-term supply and demand agreements be ensured to maintain the required water quality standards. The public private partnership model of Durban, South Africa, where responsibilities for O&M were clearly defined, could be a relevant case study (Box 2.10). Chapter 3 providers further recommendations on financing wastewater reuse schemes.

Box 2.10. Water recycling for industrial use in Durban, South-Africa

South-Africa is a water scarce country. Durban, its third largest city, depends heavily on water resources for its economic prosperity. In the 1990s, existing sewage treatment capacity could no longer deal with the volume of wastewater generated by the city’s growing population, whereas there was a growing gap in terms of available water supply to meet the needs of the population.

This led the municipality to consider wastewater recycling for industrial purposes. Interest in the recycled wastewater from two industrial users: Mondi, a paper factory, and SAPREF, an oil refinery. These industrial users required high quality recycled water, inducing high upgrade costs for the existing wastewater treatment infrastructure and much needed technical expertise. The municipality entered into a public- private partnership with Durban Water Recycling (DWR), a consortium led by Veolia to finance and operate the tertiary wastewater treatment plant. The private sector provided all funding for the project, leaving no extra costs for the Durban municipality. The guaranteed interest in the recycled wastewater from the two industries made it attractive for DWR to invest in the project. The municipality remained responsible for preliminary and primary wastewater treatment.

The project was a success on all fronts. For the city of Durban, the recycling project helped postpone investments in a new marine outfall pipeline that had become necessary because of the increased wastewater supply. The potable water which was initially used by the two industries was freed to supply the equivalent of 400,000 citizens; and the two industries saved costs on their water bill. From an environmental perspective, the project reduced the amount of wastewater discharged into the ocean by 10%. Key lessons learned and factors for success from this experience are:

• The important leadership and supporting role of the local government.

• The potential of public-private schemes as an innovative institutional arrangement.

• The importance of identifying local opportunities, including potential suppliers of wastewater and potential industries interested in the treated wastewater.

• The economic attractiveness of the recycling project for the consuming industries.

• The positive benefits co-created by this reuse initiative, including benefits for the environment, the community, the local government, and the industrial users.

Source: (World Bank Group, 2018[73]).

2.4.3. Recommendations on wastewater reuse and wastewater treatment in Mongolia

Water pollution has triggered the need to explore additional water resources in Mongolia. Projected water shortages are not only induced by a lack of available water volumes, but also by the quality of those resources. Addressing water quality through wastewater treatment and stimulating wastewater reuse can strengthen reliable water supply.

Meeting the water quality standards for both direct discharge to the environment and to the central sewage network presents a challenge for industry. Best Available Techniques’-based approaches (BAT) can offer incentives for improving wastewater treatment compliance in industrial sectors. As a first step to explore whether BAT are a viable approach, the Ministry of Environment could consider hosting a sector-specific workshop (e.g., for the textile sector, for which there is a lot of international experience) to get acquainted to the BAT concept and explore potential applications for Mongolia.

Stimulating wastewater reuse by providing an enabling legal and regulatory framework, initially targeting industries that are prepared and financially able to adopt wastewater reuse, has benefits for sustainable water demand management. Financial incentives could make reuse schemes economically viable, through public-private partnerships, favourable pricing policies, or as a last resort, subsidies. Wastewater reuse could also be a viable option to improve water storage through aquifer recharge management.

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