ULAN BATOR Aug 14 (Reuters) - Rio Tinto on Thursday secured an agreement with the Mongolian government for the construction of a power generation plant to feed the $6.5 billion Oyu Tolgoi copper project, ahead of a Sept. 30 deadline for a decision on project financing.
The Oyu Tolgoi LLC mining unit will be the primary consumer of energy generated from the power station, which is expected to be built near Mongolia's state-owned Tavan Tolgoi coal mine. Mongolia will hold an international tender to select a private company to fund construction and then own and operate the power plant, said Oyu Tolgoi.
Mongolia's prime minister, Norov Altankhuyag, signed the Power Sector Cooperation Agreement (PSCA) alongside the country's minister of energy, and Oyu Tolgoi's Rio Tinto appointed president and chief executive officer, Craig Kinnell.
Currently the project is sourcing power from China's state-owned Inner Mongolia Power Corp. region. The investment agreement Rio has with the government for the project stipulates that it must secure a local power source by 2017.
"The PSCA is a positive development for Oyu Tolgoi," said Rio Tinto Copper chief executive Jean-Sebastien Jacques, in a statement from Oyu Tolgoi. "It demonstrates how the Government and we can work together to achieve shared objectives - in this case, developing a long-term, economically competitive, and reliable power supply in the South Gobi."
Mongolia and its Western private partners are still moving forwards despite a $130 million tax demand received by Oyu Tolgoi from Mongolia's Tax Authority for the years between 2010 and 2012. A decision from a disputes council is expected to be made later this month.
Rio Tinto's majority-owned Turquoise Hill unit has also triggered a "notice of dispute" outlined in the 2009 investment agreement for the mine that gives 60 days to negotiate a resolution before it can escalate the matter further through arbitration. The deadline is expected sometime in mid-September.
Turquoise Hill owns 66 percent of the mine while the government owns the remaining 34 percent through its state-owned Erdenes Oyu Tolgoi unit.
Meanwhile the project is coming up against a third deadline, on Sept. 30, for a decision on a $4 billion project financing agreement. Approval will depend on the completion of a pre-feasibility study that Turquoise Hill said it would not release until after the tax dispute was settled. (Reporting by Terrence Edwards; editing by David Evans)