Mongolia signs long-awaited $1.3bn PPP deal with Engie-led consortium

By bne IntelliNews August 4, 2015

Jacopo Dettoni in Almaty -


The Mongolian authorities have signed a long-awaited public-private partnership agreement (PPP) for the development of a new coal-fired combined heat and power (CHP) plant in the capital city of Ulaanbaatar.

After months of negotiations, the French utility group Engie-led (formerly GDF Suez) consortium linvolving Japanese Sojitz, South Korean Posco Energy and local partner Newcom, signed a 25-year-long Build-Own-Operate-Transfer (BOOT) concession for the development of Ulaanbaatar Thermal Power Plant 5 (CHP-5) with state grid operator National Dispatching Centre, according to a joint statement issued by the consortium.

The much needed CHP-5 will add 450 megawatts (MW) of installed power capacity and 587MW of installed heat capacity to the city’s ageing CHP facilities, build in Soviet times. The new power plant is also expected to ease the city’s chronic winter pollution problems caused by the uncontrolled burning of coal in the impoverished districts, where thousands of families live in rounded felt tents of the Mongolian nomadic tradition, known as ger (yurt), with little access, if any, to the city's power grid and water and sewage infrastructure. As more capacity comes online, authorities plan to better serve the yurt districts by expanding the urban power grid and thus reducing the need for burning coal.

“The new plant will help to meet the rising electricity demand in Mongolia, which is largely driven by the mining sector and a growing population,” the Newcom statement reads.

Total investment is estimated in the order of $1.3bn, according to a 2014 presentation by one of the consortium partners Newcom.

The concession marks another step forward for the government’s ambitious plan to develop a portfolio of 50 projects under PPP schemes, mostly concerning transport and energy infrastructure.

Two PPP projects are already under construction, according to details provided by the Economic Development Ministry, including the 100MW, $123mn Telmen power plant. Another three projects have already been approved and are expected to reach the stage of construction in a matter of months, including a giant $5bn, north-south highway project stretching for 997 kilometres from the northern border with Russia all the way down to the southern border with China.

The signing of the PPP for the development of Ulaanbaatar’s CHP-5 gives new momentum to the government of Prime Minister Chimed Saikhanbileg, who took office in November 2014 with the specific task to unlock a number of key developments across the country and restore confidence among foreign investors. Saikhanbileg managed to strike an agreement with mining powerhouse Rio Tinto over a multi-billion underground expansion of the flagship copper and gold mine Oyu Tolgoi in mid-May. The government is also reportedly close to a final agreement with a consortium comprised of Chinese Shenhua Energy, Japan's Sumitomo Corporation and Ulaanbaatar-based Mongolian Mining Corporation over a $4bn development of Tavan Tolgoi, the country’s largest coal mine.

Mongolian authorities hope these projects will revive the investment bonanza the country experienced in 2011 and 2012, when foreign direct investment reached over $4bn, equivalent to 50% of the country’s GDP. It then fell to $2.05bn in 2013 and $381.9mn in 2014, according to figures from the government and the United Nations Conference on Trade and Development (Unctad), as governments began passing investor-unfriendly laws in populist moves.

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