A prophecy of power

By bne IntelliNews August 2, 2012

Nicholas Watson in Prague -

A growing number of Mongolians may want to limit the amount of foreign control over their natural resources, but the country is in dire need of investment in its absent or crumbling infrastructure, and foreign investors will be crucial in achieving this.

Prophecy Coal, a diversified thermal coal production company that controls two large coal deposits in Mongolia, is one of these investors. In May, the Canadian-listed announced it had signed a deal with the Energy Authority of Mongolia to bring its planned 600-megawatt (MW) Chandgana Power Project online by 2016, and is currently trying to finalise an agreement over power purchases with Mongolia's national grid.

"It's taken us about two years to get to where we are, where the project is fully permitted... and we're very optimistic about reaching a power purchase agreement with the government this year, so we can start construction next year," John Lee, Prophecy Coal's CEO, tells bne.

Not a moment too soon, say analysts. Mongolia is facing a critical power crunch as domestic demand booms from combination of a growing and increasingly affluent population, rapid urbanisation and industrial production that has gone through the roof as giant mining projects are developed. Between 2007 and 2011, electricity consumption in Mongolia increased on average by 6% per year, but the Ministry of Mineral Resource of Mongolia estimates that demand will grow by 14% a year in the future. "The economy has grown at double-digits pretty much for the last decade, but no power infrastructure has been built - it's in dire need of power," says Lee.

It's for this reason that projects like Prophecy Coal's, designed to directly benefit the Mongolian people, differ from those that seek to exploit the country's resources for export, like the recent attempt by Aluminum Corporation of China (Chalco) to acquire a controlling stake in SouthGobi Resources, which so riled the politicians that parliament adopted a new law on foreign investment in May that limits foreign ownership in strategic industries such as mining to 49%, unless the buyer obtains parliamentary approval.

As such, projects like Prophecy Coal's remain largely outside the resource nationalism debate. "We're not saying that there aren't challenges to working in Mongolia, but our power plant project will be built in Mongolia for Mongolians," says Lee. "Domestic issues are going to receive a much greater share of politicians' time as they begin to understand the dire need of infrastructure improvements, particularly power."

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