Mongolia plans to finance heating plants in nine provinces with Oyu Tolgoi dividends

The Government will include the long-stalled Arvaikheer plant in the 2027 budget. Energy officials warn that the coming winter could be challenging.

ULAANBAATAR, September 29 – As Mongolia prepares for its coldest months, it is accelerating energy and heating projects. The Government plans to finance stalled provincial heating plants with new dividend income from the Oyu Tolgoi copper and gold mine, as well as private investment.

During a visit to Ovorkhangai Province, Prime Minister N. Uchral said funding for the Arvaikheer thermal power plant would be resolved through the 2027 state budget and that the project would be accelerated through a public-private partnership. Construction is 45% complete, but work has been fully suspended for the past year.

The Government also plans to use income from Oyu Tolgoi dividends to complete thermal power plant projects in nine provinces. Funding for Thermal Power Plant VI, planned for Ulaanbaatar, will be shared between the public and private sectors. The state budget, including Oyu Tolgoi dividend revenue, will cover 30%, while private investors will provide the remaining 70%.

The dividends represent a new source of funding. Under the original agreement, Mongolia was not expected to receive dividends from the mine until it had repaid the multibillion-dollar loans borrowed from Rio Tinto, potentially delaying the revenue for up to a decade. The prime minister said on June 30 that under an agreement reached with Rio Tinto, Mongolia had gained the opportunity to begin receiving dividends this year. Rio Tinto confirmed that it had agreed to work with the Government to adjust interest on the shareholder loan and bring forward distributions to shareholders. Mongolia owns a 34% stake in the mine through a state-owned company. The draft 2027 budget projects Oyu Tolgoi dividend income of 3 trillion tugriks, or approximately US$836 million.

Winter power supply remains under pressure. Energy Minister B. Naidalaa said Mongolia’s installed generation capacity stood at 1,836 megawatts, while winter peak demand was expected to reach 1,956 megawatts. Officials plan to cover the shortfall by importing electricity from Russia and China, and recently finalized an agreement to import up to 80 megawatts from China. The heating infrastructure is also under heavy strain. Thermal power plants are operating at loads 50% above their design capacity, while maintenance work is running behind schedule. The damaged turbine generator at Thermal Power Plant III is scheduled to return to service on December 15. A fire at the plant in June 2025 cut off nearly one-third of the capital’s heating supply and 13% of its electricity supply.

Renewable energy remains a small but growing component. The Government held its first competitive renewable energy auction earlier this year. Projects were awarded to build a total of 220 megawatts of solar power capacity and battery storage systems rated at 135 MW/440 MWh in five provinces: Bulgan, Ovorkhangai, Govisumber, Dundgovi and Khentii. A total of 115 domestic and foreign companies expressed interest in the auction, with winning tariffs ranging from US$0.0485 to US$0.078 per kilowatt-hour. According to the Government, each project will be commissioned before the winter peak. A second auction for the Gobi region, offering 99.5% supply reliability, was scheduled for September 11.

Over the longer term, the Government is working to advance Thermal Power Plants V, VI and VII, along with the expansion of the Amgalan plant, through public-private partnerships. It has also signed a preliminary design agreement with Russia to expand Thermal Power Plant III by 300 megawatts.

The main risk is implementation. The Arvaikheer plant has already been idle for a year. The timing and amount of Oyu Tolgoi’s dividends will depend on the mine’s cash flow and Parliament’s approval of the 2027 budget.