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POWER SOURCE FRAMEWORK AGREEMENT














BETWEEN











GOVERNMENT OF MONGOLIA














AND











OYU TOLGOI LLC





















































2018


 Power Source Framework Agreement





1 Parties


(a) The Government of Mongolia represented jointly by the Minister for Energy, Davaasuren


Tserenpil and by Tleikhan Almalik, the Head of the Energy Regulatory Commission


(Governmerit); and


(b) Oyu Tolgoi LLC, a company incorporated in Mongolia, of 12th Floor, Monnis Tower,


Chinggis Avenue, 15, Sukhbaatar District, Ulaanbaatar 14240, Mongolia represented


jointly by Batsukh Galsan, Chairman of the Board of Directors and Armando Torres, Chief


Executive Officer (OT LLC).


2 Recitals


The Government and OT LLC wish to enter this agreement in order to develop a TT Power Plant


(as defined below) and to specify the other possible domestic sources to supply power to Oyu


Tolgoi mine (OT Project), including but not limited to the Mongolian national grid and renewables


projects in order to implement clause 7.3 of the Investment Agreement dated 6 October 2009


between the Government, OT LLC (formerly Ivanhoe Mines Mongolia Inc LLC), Turquoise Hill


Resources Limited (formerly Ivanhoe Mines Ltd) and Rio Tinto International Holdings Limited (OT


Investment Agreement).


3 Fundamental Principles


The parties acknowledge and agree that:


(a) the secure, safe and stable supply of domestic power to the OT Project, in an


economically viable and competitive manner for OT LLC, is of critical and material


importance to OT LLC, its shareholders, and the Government, and to economic


development in the interest of the people of Mongolia including in the Southern region of


Mongolia; and


(b) for the purposes of clause 3(a), the power supply to the OT Project may involve a


combination of one or more potential primary, supplementary and back-up sources.


4 Power source of OT mine


4.1 TT Power Plant


(a) Pursuant to Parliament Resolution No. 73 of 2018 and the Government decision for a


power station to be developed at the Tavan Tolgoi coal fields, OT LLC therefore agrees to


suspend the commencement of construction of the OT Power Plant subject to clause 7.4.


(b) The Government and OT LLC acknowledge that they will prioritise the development of the


TT Power Plant project as described below (TT Power Plant), subject to the terms of this


agreement and further technical, commercial, legal and financial due diligence and


investigations:


(i) location: land will be identified at Tavan Tolgoi coal fields. This may potentially


include land identified by Tavantolgoi Tsakhilgaan Stants LLC (TTPP LLC);


(ii) ownership: the Government supports that the TT Power Plant should be majority


owned or controlled by OT LLC and, for this purpose, OT LLC would take


ownership in and control of TTPP LLC, subject to negotiation between various


investors;


(iii) funding: the TT Power Plant’s funding sources may include, but not be limited to,


external third party debt;








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(iv) technology and configuration: 300MW (with no single unit having a capacity


greater than 150MW) gross capacity coal fired power plant with a dedicated


electricity line (defined in accordance with clause 2.6 of the TTPP IA) and water


supply infrastructure, in conjunction with such other power sources as are


described elsewhere in this agreement (including imported or other back-up


power, power from the Mongolian national grid, renewables power and diesel


power);


(v) grid connectivity: the TT Power Plant will be connected directly to the OT


Project’s central substation via a dedicated double circuit 220kV electricity line


(defined in accordance with clause 2.6 of the TTPP IA) to ensure security and


stability of power supply to the OT Project;


(vi) coal supply: Erdenes Tavan Tolgoi JSC and Energy Resources LLC, potentially


with other domestic suppliers, are intended to be the primary coal suppliers with


long-term and stable supply contracts;


(vii) water supply: the TT Power Plant intends to draw water from the western side of


the Naimdain Khundii Water Basin as envisaged in the existing water supply


arrangements for the TT Power Plant, and construct its own water infrastructure,


subject to further technical, commercial and legal due diligence and finalisation of


contractual and permitting arrangements;


(viii) regulatory regime and investment framework: prioritized and unregulated supply


regime to OT LLC (subject to Energy Regulatory Commission granting a special


permit for “Unregulated supply of energy”, which the Government must promptly


grant) and the Tavan Tolgoi Power Plant-related Investment Agreement dated 24


June 2016 with the Government (TTPP IA))-, and


(ix) operation and maintenance: OT LLC (or TTPP LLC) may facilitate, partner with or


contract suitably qualified companies to provide operation and maintenance


services to the TT Power Plant.


(c) The Government and OT LLC shall forthwith on and after the date of this agreement


discuss how to best coordinate their respective activities and due diligence investigations


in relation to the prioritisation of the TT Power Plant.


4.2 Role of OT LLC


OT LLC will dedicate the relevant management personnel and other resources towards the


prioritisation of the development of the TT Power Plant and shall use its commercially reasonable


efforts to:


(a) complete negotiations with the relevant stakeholders as soon as reasonably practical and


to finalise the relevant agreements. These agreements (Project Documents) include:


(i) share transfer agreement for TTPP LLC among the shareholders, if required;


(ii) any required agreements to obtain the licences or rights of use for the


development of TT Power Plant;


(iii) shareholders agreement;


(iv) power purchase agreement;


(v) back-up arrangements;


(vi) finance agreements (including ESIA approvals);


(vii) coal supply agreement;


(viii) construction contracts (including EPC and EPCM);


(ix) operation and maintenance agreement; and





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(x) any other relevant agreements;


(b) complete all relevant studies, designs, and procurements in preparation towards power








plant construction activities; and


(c) seek to ensure that OT LLC's funding arrangements through international financial


organisations are secured and available for the purposes of the TT Power Plant.


4.3 Role of the Government


The Government:


(a) agrees to provide full support to OT LLC in relation to all activities contemplated or


described in this agreement including as further described in clause 7.2;


(b) shall provide support to OT LLC in relation to any commercial negotiations with any


stakeholders (including in respect of the Project Documents) which shall be led by OT


LLC;


(c) acknowledges that the TTPP IA is valid and on foot and agrees to:


(i) if requested by OT LLC, provide that the shares in TTPP LLC (or any of its


subsidiaries) are transferred to OT LLC (or any subsidiary of OT LLC nominated


by OT LLC), and make any necessary and reasonable amendments to the TTPP


IA as required by OT LLC; or


(ii) if OT LLC cannot retain at least 51% ownership of TTPP LLC, enter into a new


investment agreement with OT LLC (or any subsidiary of OT LLC nominated by


OT LLC) on the same or substantially the same terms as the TTPP IA, other than


as required to be different as a result of Investment law amendment of 10


November 2016 and with any necessary and reasonable amendments required


by OT LLC in accordance with clause 4.3(c)(i);


(d) without limiting its other obligations under this agreement, and in compliance with the


relevant laws and regulations of Mongolia, shall procure that the Energy Regulatory


Commission extends the special permits provided for “Construction of energy facility",


“Electricity production, distribution and regulated supply”, “Heat production, distribution


and regulated supply”, and “Unregulated supply of electricity"; and


(e) shall ensure that the licences, permits and approvals held by TTPP LLC or any of its


subsidiaries from time to time shall be extended or granted with necessary amendments


in a timely manner and/or that OT LLC or its subsidiaries shall be granted any licences,


permits and approvals for the TT Power Plant in a timely manner as applicable.


4.4 TT Power Plant milestones and timetable


(a) Each party shall use its commercially reasonable endeavours to achieve the milestones


for which it is the party responsible by the completion dates set out in the following table.


The completion dates are subject to extension in accordance with clause 4.4(b).





TT Power Plant Milestone Completion date Party responsible


Investors to agree on transfer of the 31 January 2019 Government


ownership for TTPP LLC (permits, OT LLC


documents etc.)


Amendment to transfer TTPP IA 31 January 2019 Government


OT LLC


Issue or extension of permits, licences 31 January 2019 Government


and regulatory approvals





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 Agree funding principles 1 March 2019 Government





OT LLC


Project Documents signing (the 1 October 2019 Miscellaneous


documents referenced in clause 4.2(a)) stakeholders of TT


Power Plant


TT Power Plant construction 31 March 2020 OT LLC


commencement


TT Power Plant construction completion 30 June 2023 OT LLC





(b) Where a milestone is delayed as a result of a Delay Event, the completion date for that


milestone will be extended for the duration of such Delay Event (and each subsequent








completion date will also be extended accordingly).


(c) Delay Event means:


(i) any event of Force Majeure as that term is defined in the TTPP I A;


(ii) in the case of OT LLC, any lack of or inability to raise funding, or any failure by


Government to achieve the milestones for which it is responsible or to comply


with its obligations under this agreement; and


(iii) events of the nature described in clause 4.4(d).


(d) The parties acknowledge and agree that:


(i) achievement of the milestones, including the commencement and completion of


construction of the TT Power Plant, will require the mutual cooperation of the


parties and third parties including entry into agreements with third parties; and


(ii) failure of such cooperation to occur or failure to enter such agreements, and the


failure to reach a particular milestone, may impact on a party’s ability to meet


other milestones.


5 Mongolian national grid


(a) Consistent with the options contemplated by the OT Investment Agreement, OT LLC and


the Government acknowledge that a source of power supply to the OT Project is power


sourced from the Mongolian national electricity grid. Any power in excess of the OT


Project's requirement may be supplied from the TT Power Plant to the Mongolian national


grid based on the tariff approved by the Energy Regulatory Commission.


(b) In relation to the supply of power to the OT Project from the Mongolian national grid, it is


agreed that the representatives of the Ministry of Energy, the Relevant Entity and OT LLC


shall use their best efforts to collaborate in order to jointly identify potential solution(s) for


reliable operation, without any negative impact to either the Mongolian national grid or OT


Project (including having regard to the principles in clause 3 and clause 5(c)).


(c) The parties acknowledge and agree that before the Mongolian national grid is a viable


source of supply to the OT Project, having regard to the principles in clause 3, it shall be


determined by the joint and unanimous agreement of the Government and OT LLC


whether the Mongolian national grid is able to provide power (in respect of the amount of


power which can be provided by the Mongolian national grid at that time) to the OT


Project in a manner that is reliable, stable, secure and otherwise technically feasible and


at economically feasible and competitive cost compared to OT LLC’s other options, in


which case the tariff approved by the Energy Regulatory Committee which is applicable


for its mining customers will apply to OT LLC on non-discriminatory basis.


(d) If the Government and OT LLC jointly and unanimously agree that the Mongolian national


electricity grid is a viable source of supply to the OT Project in accordance with clause


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5(c), then the parties may enter into power purchase agreement(s) for the supply of


power to selected parts of the OT Project from the Mongolian national electricity grid in


accordance with the following:


(i) such supply may be for any period from 2019 (including as supplemental or back-


up power following supply of power from the TT Power Plant or contingency


arrangements contemplated by this agreement); and


(ii) OT LLC agrees that it will use its commercially reasonable efforts to take as much


power from the Mongolian national electricity grid, subject to clause 5(c) and the


supply of power to the OT Project already available or that will become available


from the TT Power Plant and other contingency arrangements contemplated by


this agreement.


(e) The Government agrees that:


(i) OT LLC has the right to purchase imported power from the Relevant Entity (via


arrangements with Inner Mongolia Power Corporation and its related entities


(IMPC)) before the expiry of the final completion date in clause 4.4(a); and


(ii) OT LLC has the right to continue to purchase power from the Relevant Entity


(such power sources may include both the Mongolian national grid and/or


imported power from IMPC) after the expiry of the final completion date in clause


4.4(a) as back-up power or as main source of power as stipulated in clause 7.4,


subject to the principles and requirements in clause 3, and the Relevant Entity


must procure such power supply, if required.


(f) Relevant Entity means the entity that holds the power supply special permit.


6 Other sources of power


6.1 Diesel back-up


(a) For the purposes of secure, safe and stable supply of domestic power to the OT Project,


including recognising that the sources of supply described in this agreement may from


time to time suffer events of force majeure or other interruptions, OT LLC shall be obliged


to construct and operate back-up diesel fired power facilities at the OT Project site, for


supply to the OT Project, as required to protect against injury to property or persons and


for emergencies


(b) Other than as stated in clause 6.1(a), OT LLC has the right (but not the obligation) to


construct and operate such further back-up diesel fired power facilities at the OT Project


site for supply to the OT Project as OT LLC considers necessary or desirable for the


purposes of the OT Project operations.


6.2 Renewables


The parties recognise the role of supplemental power being supplied to the OT Project by a


renewables project (such as solar or wind) including with a consortium consisting of domestic


investors and international developers with significant independent power producer (IPP)


experience.


7 Other


7.1 Government obligations


(a) (General) The Government shall fully support all activities contemplated by this


agreement, including:


(i) through the relevant State central administrative authorities and other


administrative authorities;


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(ii) by its dedication of sufficient resources including, but not limited to, as


contemplated under clause 7.2;


(iii) by ensuring the timely grant, receipt or supply of any and all required permits,


approvals and licences, and land and water rights, or other permits, approvals,


licences of any kind, as may be required under this agreement.


(b) This includes support, without limitation, and in compliance with the relevant laws and


regulations of Mongolia, in order for OT LLC to achieve the supply of power to the OT


Project from any source contemplated or referred to in this agreement.


(c) In respect of any obligations of Government under this agreement to provide any


assistance, support or approval, the Government shall procure that all levels of


government including all ministries, agencies and governmental bodies of any kind must


all provide any assistance, support or approval as relevant.


(d) (Financing) Without limiting the other provisions of this agreement:


(i) the Government shall support OT LLC arranging and procuring required funding


for the power supply and power supply infrastructure for the OT Project;


(ii) once this agreement is executed, the Government and OT LLC shall discuss and


agree on the key funding principles for the power supply and power supply


infrastructure for the OT Project; and


(iii) the parties agree to constructively work together with the intention that the return


to all the shareholders of OT LLC is not unduly negatively impacted by the


implementation of this agreement.


7.2 Implementation arrangements


The Government:


(a) shall establish and maintain a steering committee comprising representatives of the


Ministry of Energy, the Ministry of Finance, the Ministry of Mines and Heavy Industry and


the Cabinet Secretary of Government, to be referred to as the Project Steering


Committee to be responsible for providing overall guidance and facilitating coordination


among the different ministries, agencies and governmental bodies of any kind in relation


to the implementation of the activities under this agreement; and


(b) may establish and maintain a Project Implementation Unit, under the Ministry of Energy


which Project Implementation Unit shall be responsible for day-to-day support in


facilitating the implementation of the activities under this agreement.


7.3 Power supply unregulated I connection points


(a) The Government agrees that power supply from the TT Power Plant, imported power and


through direct connection from any renewables IPP to the OT Project shall be


unregulated and the electricity tariffs and pricing shall accordingly be agreed by mutual


private contract between the relevant parties on commercial and non-discriminatory


terms.


(b) The Government acknowledges that any lines for the supply of power from a power plant,


the Mongolian national grid, any imported power, and any renewables power, will be


connected directly to the OT Project substation, for security and stability of power supply


to the OT Project. The OT Project substation and, if agreed by OT LLC in its sole


discretion, any renewables project, may potentially have its own separate connection to


the Mongolian national grid.














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7.4 Contingency arrangements


(a) If:


(i) construction of the TT Power Plant under clause 4 has not commenced by the


completion date for TT Power Plant construction commencement in clause 4.4(a)


(subject to clause 4.4(b)); or


(ii) either party gives notice after 1 October 2019,


then the parties shall forthwith seek to, in good faith, agree an alternative basis on which


the TT Power Plant may proceed.


(b) If the parties do not so agree an alternative basis for the progress of the TT Power Plant


within two (2) months after either clause 7.4(a)(i) or 7.4(a)(ii) applies, the Government


and OT LLC must mutually agree on whether OT LLC will:


(i) proceed to develop the OT Power Plant; or


(ii) enter into arrangements for the supply of power to the OT Project from the


Mongolian national grid from 2023; or


(iii) proceed to develop a primary renewables power source as contemplated by


clause 7.4(d),


or any combination of the options listed above, provided that if such mutual agreement is


not reached within 2 (two) months (or such other longer period as the parties may agree


in writing) after the end of the first-mentioned 2 (two) month period, then OT LLC may and


has the right to implement any one or any combination of the options listed above, and


OT LLC will complete the construction of the OT Power Plant and/or the combination of


options listed above within 2023 subject to extension due to any Delay Event (deadline).


While the parties continue, or are required to continue, discussions and/or seek


agreement under clauses 7.4(a) and / or 7.4(b) and until the necessary agreements are


reached (discussion period), then the end of the deadline for the domestic sourcing of


power under this clause 7.4(b) will be extended by the duration of such discussion period


and (without limiting clause 7.4(c)) OT has the right to continue to purchase imported


power from the Relevant Entity.


(c) If this clause 7.4 applies, the Government shall provide support to OT LLC (consistent


with its obligations under clause 7.7 of the OT Investment Agreement) so that OT LLC


may progress the activities and power solutions contemplated by this clause 7.4. Without


limiting any other provision of this agreement, this support from the Government shall


include all assistance from the Government under the OT Investment Agreement and


includes:


(i) the issue, extension or renewal of any necessary or desirable licences, permits


and approvals in a timely manner; and


(ii) support to OT LLC to secure any interim power requirement with imported power,


pending the start of the supply of power as contemplated by this clause 7.4 and


then support to obtain power from the Relevant Entity as envisaged in clause 5(e)


as a back-up power source.


(d) (renewables) The parties recognise that:


(i) emerging technologies are leading to continual improvements to the ability of a


renewables project to supply power;


(ii) if a renewables project can deliver a technical solution which does not negatively


impact stability of either the OT Project or the Mongolian energy system, then it


may be a source of power to the OT Project (and for this purpose any renewables


project may be connected directly to the OT Project); and





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(iii) accordingly, the parties agree that, notwithstanding anything else in this


agreement, a renewables project as a source of power to the OT Project


(including together with one or more other sources of power including back-up


power) may be investigated at the same time as other activities under this


agreement occur.


(e) (OT Power Plant) OT LLC retains the right to obtain and/or maintain, renew or extend (as


applicable) any related permits, approvals and licences for the purposes of the OT Power


Plant and the Government must fully support, in compliance with the relevant laws and


regulations of Mongolia, OT LLC in this regard.


8 Warranties


(a) Each party to this agreement represents and warrants that its promises,


acknowledgements and agreements under this agreement are lawful, and that it is duly


authorised and empowered to execute this agreement.


(b) The Government represents and warrants that:


(i) it has been authorised by the Cabinet of the Government of Mongolia on 26


December 2018 to execute this agreement for and on behalf of the Government


of Mongolia as recorded in the Cabinet meeting minutes.


(ii) the signatories to this agreement are duly authorised to represent the


Government of Mongolia and execute this agreement for and on behalf of the


Government of Mongolia by Prime Ministerial decree no. 211 of 26 December


2018.


(iii) this agreement is lawful and binding on it and any successor governments


(including all levels of government ministries, agencies and governmental bodies


of any kind) and that it shall procure that all ministries, agencies and


governmental bodies of any kind comply with the terms of this agreement and


give it full effect;


(c) OT LLC represents and warrants that it has been duly authorised by the Board of


Directors to execute this agreement for and on behalf of OT LLC.


9 Dispute resolution


(a) Any disputes between the parties arising out of or in connection with this agreement shall


be settled by the parties first attempting in good faith to negotiate a resolution and if a


negotiated resolution to the dispute is not agreed to within 60 (sixty) Working Days (as


that term is defined in the TTPP IA) of the date of a party's request in writing for such


negotiation, or such other time period as may be agreed, then the dispute shall be settled


in accordance with clause 9(b).


(b) If a dispute is not settled by negotiation in accordance with clause 9(a), it shall be


resolved by binding arbitration in accordance with the procedures under the Arbitration


Rules of the United Nations Commission on International Trade Law (the UNCITRAL


Rules) as in force at the time of the dispute. Accordingly, the following shall apply:


(i) the number of arbitrators shall be 3 (three);


(ii) the 3 (three) arbitrators shall be appointed in accordance with rules 7 and 8 of the


UNCITRAL Rules;


(iii) the language of the arbitration shall be English;


(iv) the arbitrators shall apply the laws and regulations of Mongolia to the


interpretation of this agreement;


(v) the place of arbitration shall be in Singapore; and





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(vi) the arbitral proceedings shall be administered under UNCITRAL Rules by the


Singapore International Arbitration Centre.


(c) The arbitral award shall be final and binding on the parties. Judgment on the award may


be entered by any court having competent jurisdiction, provided that an arbitral award


shall first be presented in a relevant court of Mongolia for execution and enforcement. If


such execution and enforcement has not occurred within 30 (thirty) days of presentation,


the award may be presented in any other court having competent jurisdiction. The parties


hereby commit to fulfil the execution and enforcement of the arbitral award and shall not


raise any defence to its execution and enforcement.


(d) The provisions of this clause 9 shall continue to apply to any dispute that arises during


the term of this agreement or any dispute that occurs after the expiry or earlier


termination of this agreement in regard to activities arising out of or in connection with this


agreement.


(e) If a party has triggered the dispute resolution mechanism under a related agreement


(including the OT Investment Agreement) and there is a dispute under this agreement


based on the same event or series of events, the parties will act in good faith to discuss


whether to consolidate the hearing of such dispute under the dispute resolution


mechanism in the OT Investment Agreement.


10 Governing law and other matters


(a) The parties agree that during implementation of this agreement, OT LLC will be in


compliance with clause 7.3 of the OT Investment Agreement. On sourcing its total power


requirements as contemplated by this agreement, OT LLC will have satisfied its


obligations under clause 7.3 of the OT Investment Agreement.


(b) This agreement is entered in accordance with the laws of Mongolia and shall be governed


by and interpreted in accordance with the laws and regulations of Mongolia and


international treaties to which Mongolia is a party.


(c) A party shall not assign any of its rights and obligations under this, other than that OT


LLC may assign its rights under this agreement as required by the financiers in


connection with any financing of the OT Project and/or the TT Power Plant, and OT LLC


shall give prior notice of such assignment to the Government.


(d) If any provision of this agreement is found to be unenforceable for whatever reason, that


provision will be severed from the agreement, and the remainder of this agreement shall


remain in force.


(e) Upon mutual consent recorded in writing, the parties may amend or modify this


agreement.


(f) This agreement will be provided and executed in the Mongolian and English languages,


with each party retaining one copy in each language and the parties agree that the


Mongolian and English versions will be treated equally except that, in the event of any


legal dispute in the interpretation between the two-language versions, the English version


shall prevail.


(g) This agreement shall be effective from the date when all parties duly sign this agreement


and shall have the duration of the agreement implementation, provided that clauses 5(e),


7.4, 8, 9 and 10 survive thereafter.




















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This agreement is executed on 31 December 2018











For and on behalf of the GOVERNMENT OF MONGOLIA, by its duly authorised representatives:








Davaasuren Tserenpil


Minister for Energy








Signature:


Date:














Tleikhan Almalik Signature:


Head of the Energy Regulatory Commission














Date:














For and on behalf of Oyu Tolgoi LLC, by its duly authorised representatives:








Batsukh Galsan


Chairman of the Board of Directors





Signature:








Date














Armando Torres


Chief Executive Officer





Signature:








Date:
































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