Oyu Tolgoi Investment Agreement and power supply

From Global Energy Monitor

The Oyu Tolgoi Investment Agreement sets out the terms agreed between the Mongolian government, Ivanhoe Mines and Rio Tinto for the development of the Oyu Tolgoi copper mine. One section of the agreement details provisions relating to the provision of power supply for both the first four years of the project and longer term supply once the project reaches full capacity.[1]

Provisions of the Investment Agreement

Section 7 of the Oyu Tolgoi Investment Agreement sets out the provisions relating to power supply for the project. It states:[1]

7. 1 "The Government and the Investor will work together in good faith and in an open and cooperative manner to determine the most optimal and reliable solutions for power supply in order to meet the requirements of the OT Project and its development schedule, without affecting the rights of the Investor under Clause 7.2.
7.2. The Investor and/or its Affiliates have the following rights:
7.2.1.taking into consideration Clause 7.3, to secure all the power requirements for the OT Project from inside or outside Mongolia by the construction of any transmission infrastructure required for this purpose (including the construction of a 220kV transmission line from the Oyu Tolgoi Deposit site to the China - Mongolia border during the Construction Period);
7.2.2. to install and operate (or procure installation and operation by an Affiliate, Contractor and/or Subcontractor) power generation facilities within Mongolia at a site most appropriate for the short and long-term power requirements of the OT Project; and
7.2.3. to determine the source of coal to be used for such power generation.
7.3. The Investor shall, within 4 (four) years of Commencement of Production, secure its total power requirements for the OT Project from one or more of the following sources within Mongolia to be selected by the Investor:
7.3.1.coal-fired power plant developed or funded by the Investor;
7.3.2.coal-fired power plant developed or funded by a third party; or
7.3.3. the Mongolian electricity grid.
7.4. Where the Government supplies power to the Investor, the supply shall be on commercial and non-discriminatory terms, and will provide stable, reliable and uninterrupted power and in a quantity sufficient for the OT Project.
7.5. The Investor has the right to use or develop supplemental power from renewable energy sources such as wind, solar, geothermal and the like.
7.6. The Investor shall obtain all the necessary Permits required for energy generation, transmission and distribution, and construction of power facilities as set out in the Energy Law and other related laws and regulations.
7.7. The Government shall grant to the Investor the Permits required for its power supply as described in Clauses 7.2 and 7.3 as efficiently as possible and the respective Permits shall be granted for the maximum term permitted under the Energy Law and other related laws and regulations, with the right of extension for the maximum period permitted under such laws and regulations during the term of this Agreement.
7.8. Fees and charges for the use of land required for energy infrastructure shall be regulated in accordance with the Energy Law and other related laws and regulations, and the fees and charges so paid shall be treated as a deductible expense from the taxable income of the Investor.
7.9. Fees and charges payable by the Investor in relation to power generation, and transmission and distribution infrastructure will not be Stabilized and shall be regulated by the Energy Law and other related laws and regulations based on principles of non-discrimination. Fees and charges paid by the Investor in relation to its operations for power, transportation and other infrastructure shall be treated as a deductible expense from the taxable income of the Investor.
7.10. Where the Government supplies power to the Investor, all prices, tariffs, fees and charges payable by the Investor shall be set on a non-discriminatory basis."

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