OBG talks to Willem van Twembeke, CEO and President, GDF SUEZ Energy Asia

Interview: Willem van Twembeke

What should be done to attract more investment in the energy sector and offset growing demand?

WILLWM VAN TWEMBEKE: A successful first project will set the standard for future energy projects in Mongolia. The government has chosen a bidder, and negotiations are now under way, aiming at a commercial operations date in 2016. Completion of the project will send a positive message to the international investment community. The energy infrastructure will need reinforcement given projected growth in demand. There will be an additional requirement for power plants to cater to the energy needs of Ulaanbaatar and to feed the mining industry. The transmission system will need to be upgraded to interconnect the different plants and guarantee a stable energy supply countrywide. Prices for power are currently increasing. A future drop in price is unlikely though, as the significant investment will require repayment.

How will the completion of combined heat power (CHP) 5 improve the local energy supply?

TWEMBEKE: Total investment for the power plant CHP5 will be approximately $1.3bn. The plant produces 587 MW thermal and 450 MW electricity in CHP mode and 370 MW electricity in power only mode. There are a number of advantages associated with the CHP5 plant. First, we will employ the latest technology. Efficiency will also improve significantly, given that far less carbon dioxide per unit of heat/power will be produced. In addition, the plant is equipped with the latest emission controls to help improve the poor air quality in Ulaanbaatar.

The facility consists of three plants and increases the reliability of heat supply in the system. In fact, the full power/heat capacity can be delivered with only two of the three units, so availability of heat will be guaranteed in the most efficient way up to the highest international standards. The government will also ensure an uninterrupted coal supply by upgrading the existing railway infrastructure to meet future demands.

Given recent legal reforms, what is the investment climate for large-scale energy projects?

TWEMBEKE: Different risk factors exist in many countries. The recent foreign investment law is not out of line with what we have seen elsewhere. Compared with Chile, Peru, Canada or Australia, this regulation is completely normal. As a project developer, it is important to clearly communicate what you are planning to do. It is self-evident that for any investment project in this country, the local community expects to benefit, which is fair.

The successful development of the country’s infrastructure can only happen if you find the right equation. The private investor needs to be satisfied because he puts capital at risk, and local companies need to make their margins too. Should everybody win, investments will continue. If the current first big investments in energy, mining and infrastructure are successful, there will be further investments.

Given Mongolia’s size and climate, what potential do you see in the role of clean energy production?

TWEMBEKE: Newcom is now developing a 50-MW wind farm and there are other projects on the agenda as well. Additional feasibility studies for hydro projects are being explored, so there is potential for a balanced energy portfolio. Coal generation will remain the base, as it is both abundant and cost efficient. How the energy sector evolves will depend on the amount of industry that is installed, especially in the mining sector. Over the next 20 years, we will witness substantial growth of installed capacity. At the moment, Mongolia has 1000 MW, and this can be readily doubled with the next 10 years. The success of the mining industry will determine the rise in installed capacity. There are notable plans to connect the system to the Asian grid in the long term and become an energy exporter, but first and foremost it is important to strengthen the system domestically. It is certainly an area with tremendous potential.