India to Finance Mongolia’s Greenfield Oil Refinery Plant

In November, Mongolia and India closed a $1.2 billion soft loan to finance Mongolia’s greenfield oil refinery plant in the South Gobi. To diversify Mongolia’s energy sector, Ulaanbaatar is putting its third-neighbor foreign policy into economic practice.

Since Mongolia and India upgraded their bilateral ties from “spiritual partners” to strategic partners in 2015, the two countries’ economic ties have improved. The singing ceremony between Mongol Refinery and Megha Engineering & Infrastructures Limited (MEIL) was attended by Mongolian Deputy Prime Minister Amarsaikhan Sainbuyan, Indian Ambassador to Mongolia MP Singh, Economic Adviser to the President of Mongolia Davaadalai Batsuuri, and officials from the Ministry of Foreign Affairs of Mongolia and India.

Mongolia’s natural resources, the main engine of the country’s economy, are indeed a matter of foreign policy. In addition, Mongolia’s landlocked position between the two giants, Russia and China, means that Ulaanbaatar requires extra effort to attract foreign investment from neighboring third countries. Therefore, the India-Mongolia joint oil refinery is something to be reckoned with.

Mongolia is known on the world stage for its coal exports, not its crude oil production. However, during the 1940s and early 1960s, Mongolia produced oil in the Zuunbayan region, with technical assistance and trained specialists provided by Soviet engineers.

After the democratic revolution of 1991, Mongolia carried out various programs to boost its energy sector. Programs such as the Oil Program (1990) and the Oil Participation Contract (1993) were implemented in collaboration with foreign partners and energy experts. However, none of these initiatives disrupted Mongolia’s energy sector, nor did they help develop a fully operational system that would prevent Mongolia from becoming dependent on Russia and other energy-exporting countries for oil and other petroleum products.

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Understanding the importance of this malnutrition, the Mongolian government supported new initiatives and projects not only to diversify its mining sector but also to create an investment opportunity, particularly in the energy sector. And when India and Mongolia became strategic partners, Ulaanbaatar saw a window of opportunity. India’s interest in developing Mongolia’s oil sector is an example of successfully utilizing the foreign policy of Mongolia’s third neighbor.

From Mongolia’s perspective, given the region’s instability and its energy dependence on foreign suppliers, it is in the interest of Mongolia to have access to an alternative or additional source of domestic energy supply.

The successful completion of the Mongolian refinery plant will be the foundation for a new industrial sector, but it will also have positive implications for the economy at the macro level, by slowing the outflow of foreign exchange from Mongolia, stabilizing the prices of petroleum products and mitigate the country’s trade. deficit.

“Currently, the country’s demand for petroleum products depends mainly on Russian imports. The oil refinery plant will supply the country’s demand for various petroleum products, including diesel, gasoline, jet fuel, LPG, and fuel oil. This would mean reducing the country’s dependence on foreign supply and, more importantly, strengthening domestic power supply lines,” Mongolian Vice Minister of Mining and Heavy Industry Batnairamdal Otgonshar told Bolor Lkhaajav of The Diplomat.

“With the plant fully operational, we hope to satisfy between 55 and 60 percent of the national demand for fuel. In addition, we project an increase of 6,000 jobs during the construction phases of the plant and an additional 560 permanent jobs after the plant is operational. The goal is to increase GDP by more than 10 percent.”

From a regional perspective, taking into account Ulaanbaatar’s comprehensive strategic partnerships with Beijing and Moscow, the establishment of a fully functioning oil industry elevates Mongolia’s relevance and importance in the region.

According to the Petro Matad Group, a Mongolia-based oil exploration company, “as of 2022, there are a total of 33 oil blocks. Four of these blocks have advanced to production, while exploration is taking place on 13 blocks under 13 PSCs (production sharing contracts).

According to the assessment of the Petro Matad Group and the growing interest in the Mongolian energy sector, if implemented correctly, the Mongolian oil industry could have a positive influence. As with any new industry, this creates an opportunity for human capital, trained engineers and national experts in a highly specialized area of ​​mining.

Despite all the positive prospects and promises, these issues can no longer be discussed in good faith without acknowledging the ongoing fight against mining and corruption. protests As in previous embezzlement cases involving large state-owned companies such as Erdenet, Erdenes Tavan Tolgoi and the mix of small and medium-sized funds, new industries and large developments need to go one step further to win the trust of the public practicing financial transparency, as well as accountability.

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