GDF Suez SA (GSZ) led a group selected to build a $1.2 billion coal-fired power plant in Ulaanbaatar, as Mongolia seeks to ease pressure on the capital’s Soviet-era power infrastructure.

GDF, Sojitz Corp. (2768), Posco (005490) Energy Corp. and Mongolia’s Newcom Group, today signed a memorandum of understanding at Mongolia’s energy ministry to build a combined heat and power plant, Energy Minister Mishig Sonompil told reporters.

Ulaanbaatar’s population doubled over the past 15 years to 1.2 million people and the infrastructure is unable to cope with demands in winter, when temperatures can drop to minus 30 Fahrenheit. Half the population live in unplanned districts, whose reliance on raw coal in winter contributed to the World Health Organization naming Ulaanbaatar as the world’s second-most polluted city in 2011.

The GDF Suez group beat a bid from a partnership that included Samsung C&T Corp. (000830) and Korea Southern Power Co. Delays in selecting a winner have stretched more than year as the government changed the proposed location of the plant, now slated to be built 15km east of downtown Ulaanbaatar.

The memorandum allows the group to begin talks with the government on project agreements, Newcom Chief Executive Officer Baatar Unenbat said. The proposed 25-year reference tariff for electricity from the plant is 63.1 tugrik a kilowatt hour, Unenbat said. Commissioning of the plant is expected by 2017, he added.