On 15 February 2018 the Government of Mongolia cancelled the Southern Region Power Sector Cooperation Agreement (PSCA). The PSCA laid out a framework for cooperation between the Government of Mongolia and Oyu Tolgoi LLC to deliver a comprehensive energy plan for the South Gobi region. The Government of Mongolia’s primary intention was to develop the Tavan Tolgoi Power Project (TTPP), a new independent power plant at the Tavan Tolgoi coalfields, with Oyu Tolgoi as off-taker rather than owner.

The cost of building a power plant by Oyu Tolgoi is not included in the $5.3 billion investment approved for the development of the underground in May 2016.

The formation of the PCSA and prioritisation of discussions and evaluation of TTPP, at the specific request of the Government of Mongolia, resulted in the suspension of Oyu Tolgoi’s plans to start construction its own power plant in 2012. It also suspended Oyu Tolgoi’s obligation under the 2009 Investment Agreement to source power from within Mongolia by 2017 because it was recognised by the Government that the TTPP process would take longer than four years.

While TTPP is moving forward and despite considerable efforts by the Government’s Project Implementation Unit, MCS (TTPP’s domestic shareholder), Rio Tinto and Oyu Tolgoi to progress the project, its development has been slow due to limited investors and lenders appetite. TTPP currently lacks a lead investor to develop a viable technical and commercial proposal for Oyu Tolgoi to consider and it is unable to secure financing without a credible lead investor. Extensive negotiations and lender due diligence would still be required once those key issues are resolved. TTPP would therefore not be operational within four years.

Oyu Tolgoi has been reviewing other options that can be implemented within the four year timeframe, including refreshing previous plans to develop its own power plant at the Oyu Tolgoi mine site. In this context, Oyu Tolgoi will be engaging with the Minister of Energy to ensure the necessary permits and approvals are in place, including the application of permits that were submitted for renewal in January 2017, but which have not been granted, and to ensure overall alignment on the way forward.

The cost of building a power plant by Oyu Tolgoi is not included in the $5.3 billion investment approved for the development of the underground in May 2016.