Mongolia forces Rio Tinto to build power station

Rio Tinto could face higher costs on its $US5.3 billion expansion of Mongolia’s Oyu Tolgoi mine, after the developing Asian nation ordered the miner to source power for the mine domestically within four years.

The move reinstates an original aspect of the 2009 investment agreement for the mine, and is the latest example of what appears to be growing sovereign risk in the nation.

Rio has been sourcing power for the mine from Chinese generators in recent years, after Mongolia agreed to waive a requirement for Rio to build a domestic power source within four years of the start of commercial production.

But that waiver was terminated by the Government on Friday, meaning Rio must source Oyu Tolgoi’s enormous power requirements from a Mongolian source by February 15, 2022.

The Rio subsidiary that owns 66 per cent of Oyu Tolgoi, Turquoise Hill Resources, said it and Rio were “continuing to evaluate all viable power options including construction of an Oyu Tolgoi based power plant”.

But Rio said it had separately set aside some money for the power station, although it was unclear on Friday whether those amounts would cover the full cost of the power station.

“The cost and means of financing this will be finalised between shareholders. Rio Tinto will continue to review its capex forecasts for the project but has already earmarked $US250 million a year for the development of a power station in Mongolia in its 2019 and 2020 capex forecasts,” the company said in a statement.

Cancellation of the power agreement comes less than a month after Rio and Mongolia vowed to discuss ways to reduce the cost of the project, and after protests at the Chinese border stopped copper concentrate from reaching Oyu Tolgoi customers.