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Decision on OT power procurement needs to be made this year


2018-06-08 13:46:04
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We recently interviewed Minister of Energy Ts.Davaasuren about issues related to Oyu Tolgoi (OT) and Tavan Tolgoi Power Project (TTPP).
 
-The Government of Mongolia cancelled the Southern Region Power Sector Cooperation Agreement (SRPSCA) with Oyu Tolgoi in February. How has the power project been running since then?
 
-The SRPSCA, invalidating provision 7.3 of the Oyu Tolgoi Investment Agreement, which stated that within 4 years of Commencement of Production the Oyu Tolgoi is liable to secure its energy needs from domestic sources, was annulled. Afterwards, we reminded Oyu Tolgoi that it’s necessary to solve energy source issue and that the investment agreement may have been violated. An official letter to get information on actions that were taken during this period was sent to OT on May 22. According to the information we got, they held meetings with the Tavan Tolgoi Project unit and South Korean investors. The main mining of the OT project will be in 2021-2025 and the power plant construction will take 4 years. We are concerned about losing time as the
deadline is 2020. Therefore, we would like to discuss some issues regarding the implementation of the OT Investment Agreement provisions.
 
-What are the investors’ requirements for TTPP? How do we ensure that OT stably buys energy from the domestic source?
 
-Of course, buying and selling is of the utmost importance. Therefore, Rio Tinto and Oyu Tolgoi are demanded to utilize sustainable power procurement. Oyu Tolgoi is liable to secure their energy needs from domestic sources. The Government will require them to fulfill the contract provisions. We must give the licenses in accordance with relevant regulations.
 
-In his interview, OT’s Chairman of the Board of Directors mentioned ongoing studies on power plant construction at the project site. Does this have potential?
 
- There are three options for power plant construction, one of which is to build it on the project site. They got a license regarding this but it expired. An extension can be discussed now. However, developing a feasibility study is long-term work especially for a large plant. Therefore, the Government considered that it is preferable to work on the existing projects. That way it will be possible to complete the power plant construction within 4 years.
 
-Are there any cases of Government or the Ministry delaying Rio Tinto’s proposals and related work?
 
-If they say a delay was forced, it would be just a pretext. Strictly saying, the SRPSCA was signed illegally as it invalidated a provision of the 2009 Investment Agreement. Because the Investment Agreement was approved by Parliament, the amendment to the Agreement must have been discussed by Parliament. But the SRPSCA was signed on the Government level without being discussed by Parliament. As a result of the SRPSCA annulment, the Investment agreement provision on power procurement from Mongolia entered into force. There should not be any other explanation.
 
-A political decision is expected on comprehensive advancement of the Tavan Tolgoi Project in the near future. Can we assume that TTPP will start and the government will support it with policy?
 
-On May 23, the Cabinet made a decision to construct a railway in route from Tavan Tolgoi-Zuunbayan during its regular meeting. It means that the Government is pursuing a policy to open
the second gateway for transportation. As for the power plant in Tavan Tolgoi, energy is in demand. Mining companies operating in the Oyu Tolgoi and Tavan Tolgoi mines are the major energy consumers. Thus, it’s necessary to solve issues regarding the power plant as soon as possible. However, Oyu Tolgoi, the major energy consumer, has not yet made any clarification on its power source. (OT should secure its total power requirements for the OT Project from one or more of the following sources within Mongolia – a coal-fired power plant developed or funded by the Investor, a coal-fired power plant developed or funded by a third party, or the Mongolian electricity grid.) It is not clear whether OT company will build a power plant or not. This is wrong;
therefore, Oyu Tolgoi has to be pushed to make a decision on power plant construction within this year, regardless of the Tavan Tolgoi Project.
 
-What if a decision is not made within the specified time?
 
- The Government will demand the implementation of the Oyu Tolgoi Investment Agreement. It is wrong to keep it uncertain. As mentioned above, if it continues like this, we will not achieve anything by the 2024.
 
- What’s your position on comprehensive promotion of the Tavan Tolgoi Project?
 
- Various versions were discussed before. However, I think that the Government ownership of 51 percent is the most appropriate version. The Government must have its share if it considers that natural resources should be owned by the people of Mongolia. The issues and problems we are facing now regarding Oyu Tolgoi is due to the Government’s failure to own 51 percent. Previous Parliament members made a joint proposal that the Government must own 51 percent of Tavan Tolgoi. It’s a necessary action as the 1072 shares are considered in connection with TT. As for the remaining 49 percent, proper management is needed.
 
-How will Tavan Tolgoi Project intensification impact the economy?
 
-Tavan Tolgoi has a great resource. Last year, economic growth was made thanks to Tavan Tolgoi coal mining. In 2016, the export revenue of Mongolia was USD 4.9 billion, while it reached USD 6.2 billion by the end of the 2017. The economic growth gave us a chance to take a break for a while. On the other hand, Erdenet Mining Corporation has improved significantly, increasing its
tax payments from MNT 300 billion to over MNT 520 billion in 2017. However, the tax paid by Oyu Tolgoi decreased regardless of the increased price of gold and copper on the global market. In past years, Oyu Tolgoi paid MNT 140-160 billion in corporate income tax while it only paid MNT 19 billion in 2017. It shows the company’s cost increase. Corporate income tax decreases as costs rise. The members of OT’s Board of Directors, representing the Government of Mongolia must pay close attention to this matter and take control. They should work closely with Erdenes Mongol within the framework of its role as State Representative. They must also provide the Ministry of Finance and the Ministry of Mining and Heavy Industry with specific information.
 
-Representatives of civil society organizations have been included in the working group in charge of examining implementation of the Oyu Tolgoi agreement. What are your expectations?

-The working group has recently been restructured. We hope that they will come up with certain issues. I hope that the problem will be solved for the people’s benefit.