A powerful combination: Expansion continues in both new and traditional segments

Nuclear power has at times been considered a prominent part of Mongolia’s energy mix in the long term. The country has significant uranium reserves in multiple locations, according to data from the International Atomic Energy Agency, with the vast majority of it in the Dornod field in the north-east. Mongolia has in recent years been reforming its relevant laws and state agencies, and at points in the past the official goal was to have nuclear energy contributing to the mix of electricity sources by 2020. As of late 2012, however, there are no plans for a nuclear power plant, and it appears the option is not currently under consideration.

GOING NUCLEAR: Uranium reserves were estimated at 76,566 tonnes by the International Atomic Energy Agency as of 2009. Some fields are currently dormant and others in development or at the exploration stages, but there was as of end-2012 no extraction activities under way. Uranium has not been mined in Mongolia since 1995, when the Dornod deposit was abandoned by Russia. Under communism, when Mongolia worked in close cooperation with Russia, the country was surveyed by Soviet geologists and Dornod was developed as an open-pit mine that supplied the USSR’s nuclear needs. Those Soviet-era surveys indicated there were potential reserves of as much as 150,000 tonnes.

RESTARTING: Efforts to restart uranium mining have been unsuccessful so far, even though it is among the only natural resources in Mongolia for which new exploration licences have been available in recent years. The regulator, the Nuclear Energy Authority, issued 107 licences in 2011 and two exploitation licences.

Mongolia had been progressing toward a restart of Dornod until 2010. Licences to develop the site were awarded to a consortium led by a Canadian mining company, Khan Resources, in 2005. Khan took a 58% stake in a joint venture to develop Dornod, with two minor partners at 21% each. Those minority stakeholders were the Mongolian government and Atomredmetzoloto (ARMZ), part of Rosatom, the Russian state nuclear agency. Khan’s permits were suspended in 2009 however, with environmental compliance concerns cited as the reason. Shortly thereafter the Great Kuraal, Mongolia’s parliament, passed the 2009 Nuclear Energy Law. It allows the government a 51% stake in any uranium deposit in which it had previously invested in exploration. Also in 2009, Mongolia set up the Nuclear Energy Authority and MonAtom as the state entity in charge of exploration and implementing national policy to establish a nuclear power plant. MonAtom officials told media in April 2011 that a plant was in the works. But in the 2012 Parliamentary session, Prime Minister N. Altankhuyag clarified that the new government elected in June 2012 will not pursue the option.

PLANS CHANGED: In November of 2009, after the legal changes, ARMZ announced a hostile takeover bid of Khan’s publicly traded shares in Canada, and offered a per-share price significantly below market value – about $0.61 a share, implying a market value for Khan of $35m. Khan found a white knight in the China National Nuclear Corporation, which offered $0.90 per share.

However, before either takeover proposal was completed or rejected Khan’s permits were revoked, in April 2010.

Authorities again cited environment-related reasons.

In December 2010 ARMZ and Mongolia’s government announced a new plan for Dornod, followed by a law in January 2011 establishing a joint venture in which Mongolia has a 51% stake and ARMZ 49%.

Khan won a judgment in a Mongolian court claiming it was wronged, but the state has so far ignored that decision. Khan is also in the process of suing ARMZ in its home jurisdiction of Canada. Khan filed a suit at the UN’s Commission on International Trade Law. In its latest action, in July 2011, the tribunal tossed out Mongolian objections concerning jurisdiction, and the case was expected to begin new proceedings in late 2012, with each side arguing its case and deciding the amount of damages, if any, Mongolia will be ordered to pay. The company is seeking $200m in compensation, although there is no clear enforcement mechanism that will ensure any settlement is paid (see Mining chapter). Though no deposits are expected that could rival Dornod, exploration is still under way elsewhere. Areva Mongol, a subsidiary of France’s Areva, has been operating in Mongolia since 2006 and has 28 licences giving it rights to explore 14,100 sq km of territory, mostly in the Gobi Desert in the southern region.

BUILDING CAPACITY: The Dornod joint venture is not the first time the Mongolian government has tried to contract new power plants on a public-private partnership (PPP) basis. In 2008 a tender to partner with the state on a conventional coal-powered plant drew only one bidder and was cancelled. “The tender wasn’t specific enough to be bankable,’’ said D. Gankhuyag, the director for infrastructure and energy at Mongolian large conglomerate Newcom Group. “The government did not seek outside help in drafting it. Liabilities were unclear and the government’s responsibility was unclear.’’ Mongolia has since passed its Concessions Law that provides a legal environment for PPPs and clarifies the government guarantees available and mandated in PPP-structured arrangements. As of November 2012, negotiations for a new combined heat and power (CHP) plant, known as CHP5, had reached an advanced stage. What remained to be done, Gankhuyag told OBG, was to settle six agreements within the contract: for concessions, power purchasing, heat purchasing, land ownership, coal supply and water supply. For the PPP, the state is also providing land and water and upgrading existing railway connections to handle the delivery of coal to the plant. Gankhuyag said the plant will require 2.6m tonnes of coal a year, or 160 rail wagons daily. The plan was to deliver it from domestically owned coal mines at Shivee Ovoo (70% of supply), and Baganuur (30%). Land ownership was an issue at the Mongolian Investment Summit in Hong Kong, held in October 2012 but the final location for construction will be in the Holiin Gol Valley. Three foreign partners will each own 30%: France’s GDF Suez, Sojitz Group of Japan and Posco Energy of South Korea.

FUTURE PLANS: At the Discover Mongolia Forum in Ulaanbaatar in August 2012, the deputy director of energy policy at the Ministry of Mining, D. Purevbayar, shared with investors a vision for future projects. Demand in Ulaanbaatar is expected to treble from its current level by 2020. To help meet this rise, more than 2 GW of new capacity is envisioned for the Central Energy System, to be provided by a combination of thermal, hydro and wind electricity. In the Eastern Energy System, demand from mining projects is already three times the current usage, and an estimates 550 MW in new capacity is needed.

The Gobi Desert in the south, where a fifth regional electricity system is in the process of being created, is where demand is set to truly explode, however. Here, thanks to the major mining efforts to come at Oyu Tolgoi and Tavan Tolgoi, demand is set to rise 12-fold. Oyu Tolgoi requires 280 MW of capacity, which will come via a line connected to China’s grid in the short term.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Mongolia 2013

Energy chapter from The Report: Mongolia 2013

Cover of The Report: Mongolia 2013

The Report

This article is from the Energy chapter of The Report: Mongolia 2013. Explore other chapters from this report.