RJP-Power vacuum: Rio Tinto scours for electricity to run giant Mongolia copper mine

Harbin Electric

11/09/2018 02:03

* Mining giant running out of time to secure power supplies
    * Chinese electricity set to be stopped in 2022
    * Government wants new power plant at Tavan Tolgoi coal site
 

    By Barbara Lewis and Munkhchimeg Davaasharav
    LONDON/ULAANBAATAR, Sept x (Reuters) - Mining giant Rio
Tinto  RIO.L  RIO.AX  is racing against time to find the
electricity needed to run its giant copper-gold mine in
Mongolia, as wrangles with the government threaten a further
setback for the flagship project.    
    Oyu Tolgoi, located in the South Gobi region near landlocked
Mongolia's southern border with China, is scheduled to complete
a $5.3 billion underground expansion by 2022, creating one of
the world's biggest copper suppliers.    
    The project is set to transform Mongolia's tiny economy and
is key for Rio as the sole potential growth area for its copper
business, but it has been beset by squabbles over cost overruns,
claims of unpaid taxes and corruption allegations.    
    Now, Rio Tinto and the government are engaged in
brinksmanship, not only about the location of the power plant
required to run the mine, but also who should pay for it,
risking further delays.  (Can we explain the brinksmanship?, or
else maybe drop it)    
    Oyu Tolgoi currently pays about $100 million a year to buy
electricity from China for its open pit mine, but according to a
landmark 2009 agreement, a domestic power source must be found
for the project by 2022.    
    The Anglo-Australian miner has invited three state-owned
Chinese contractors to submit bids to build a $1.5 billion power
station, but has yet to make a final decision on a go-ahead or
receive permits from the Mongolian government.    
    Even if Rio Tinto made a decision immediately, it would be
virtually impossible to complete construction before 2023, said
an industry source said on condition of anonymity.    
    HOW RELIABLE IS THIS SOURCE? CAN WE GET A QUOTE HERE OR GIVE
MORE DETAILS?
            
    PARTNERS AT ODDS    
    The complication for the power project is the Mongolian
government's desire to kickstart the nearby Tavan Tolgoi coking
coal project, a massive resources that would xxxx xxxx, and
which lies just xxxx km from Oyu Tolgoi.    
    Rio had originally planned to build its own power capacity,
but it was encouraged by the government in 2014 to switch to a
proposed plant at Tavan Tolgoi, where it would be an off-taker
rather than investor.     
    Mongolia hoped Oyu Tolgoi's involvement as a guaranteed
customer would encourage investors to back the long-delayed coal
mine, and this remains its preferred option, a government source
familiar with the situation said.     
    However, in February this year, the government cancelled a
2014 agreement setting up a framework for co-operation on a
shared power plant (why did they do this?)    
    Oyu Tolgoi, which pays about $100 million a year to buy
electricity from China, is looking at options for a domestic
power source, said Luke Colton, chief financial officer at
Turquoise Hill Resources  TRQ.TO , the Rio-controlled unit that
owns 66 percent of the project.    
    "An Oyu Tolgoi-based plant is currently the most feasible
option that could deliver a domestic power source within the
shortest timeframe," said Colton, although he added that a Tavan
Tolgoi plant remains an "important option". 
               
    LOCAL POLITICS
    Whatever Rio does, Mongolia is still determined to go ahead
with the Tavan Tolgoi plant.    
    Otgochuluu Chuluuntseren, a former government official who
also served as an Oyu Tolgoi board member, said it was the best
option, although politics were getting in the way. (what does
this mean? can we say briefly?)       
    "The main challenge remains the same: political instability
and unpredictability," he said.      
    Some government officials have expressed impatience about
the delays, saying plant construction (at Oyu Tolgoi or Tavan
Tolgoi?) could have started years ago.                  
    "Oyu Tolgoi should stop playing with the Mongolian state!"
Mongolia's energy minister Davaasuren Tserenpil said on the
ministry's official Twitter account last month.    
     Mongolia's cabinet will soon discuss how to deliver
electricity to the scarcely-populated South Gobi. (how do we
know this? Will this push the story forward?)    
    Rio, meanwhile, says its plan for a power plant at Oyu
Tolgoi could add another $1.5 billion to the project's total
costs, far higher than originally envisaged back in xxxx. With
the Mongolian government owning 34 percent of the project, it
would also have to stump up $500 million.            
    Sun Jianli, spokesman with the Power Construction
Corporation of China  601669.SS , one of the contractors, told
Reuters the bid was "preliminary" and the project was still
"very far away". The others, China Machinery Engineering
Corporation  1829.HK  and Harbin Electric International
 1133.HK , declined to comment.    
    If nothing his built on time Rio and Mongolia would face a
decision on the domestic power requirement to keep Oyu Tolgoi
running. Even if it continue dto take Chinese power, the bill
would soar once underground operations get underway. (why?
Source?)    

 (Additional reporting by David Stanway in SHANGHAI and Melanie
Burton in MELBOURNE
Editing by XXXXX)
 ((david.stanway@thomsonreuters.com; +86 21 6104 1799; Reuters
Messaging: david.stanway.thomsonreuters.com@reuters.net))