Mongolia Seeks Investors for Thermal Plant to Power Oyu Tolgoi

Mongolia is seeking international investors to help fund a coal-fired thermal plant in the Gobi Desert to power its biggest infrastructure project, the Oyu Tolgoi copper and gold mine.

“The total cost to build the power station will be roughly $500 million,” said Odon Sainbuyan, the Executive Director of Erdenes MGL, a state-owned company that holds the shares of Mongolia’s strategic deposits, including Erdenes Oyu Tolgoi and Erdenes Tavan Tolgoi.

Oyu Tolgoi is at the center of a dispute between Rio Tinto Group (RIO), which controls 66 percent of the $6.6 billion project, and the government, which holds the remainder through Erdenes MGL. The two sides will meet later this month to try and resolve their dispute over cost overruns, financing, taxes and the government’s desire for more locals in the mine’s management.

The target construction date for the plant is 2016, which would allow Mongolia to adhere to the terms of its investment agreement struck with Rio. The agreement states that Oyu Tolgoi must source all its power from Mongolia within four years of first production, expected in June. The mine currently imports all its power needs from China.

The government will announce a tender to find a company to build the 300 megawatt plant, to be built at the Tavan Tolgoi coal deposit. Sainbuyan said Germany’s Siemens AG (SIE), as well as unnamed companies from China, have expressed interest in the project.

‘New Opportunities’

Erlangen, Germany-based Siemens spokesman Torsten Wolf said the company is “always interested in new opportunities,” without elaborating.

Mongolia will fund 30 percent of the power station through its $1.5 billion Chinggis Bond fund, raised on international markets in November. The rest will come from private investors and loans, said Sainbuyan, appointed to the head of Erdenes MGL in November 2012.

At a meeting on March 7, the government allocated $50 million from the Chinggis Bond for initial start-up costs. Sainbuyan said the cash would be used to hire consultants and to set up the project unit.

The Oyu Tolgoi mine, 130 kilometers (81 miles) southeast of Tavan Tolgoi, is the primary driver of Mongolia’s $10 billion economy and by 2020 is expected to make up one-third of Mongolia’s gross domestic product.

The government favors building the plant at Tavan Tolgoi, rather than at Oyu Tolgoi, for logistical reasons.

“If the power station is located at Oyu Tolgoi then the coal will need to be transported to the project site. If it’s at Tavan Tolgoi, there will be no need to ship any coal. It’s more economical, logical and efficient,” said Sainbuyan.

Sainbuyan said the 300 megawatt power plant is only a first stage and that the facility will expand to a total capacity of 1,200 megawatt.

To contact the reporter on this story: Michael Kohn in Ulan Bator at mkohn5@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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