India to Finance Mongolia’s Greenfield Oil Refinery Plant – The Diplomat


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

Since Mongolia and India upgraded bilateral relations from “spiritual partners” to strategic partners in 2015, economic relations between the two countries have improved. The signing 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 Mongolian President Davaadalai Batsuuri and officials from the Ministry of Foreign Affairs. Mongolia and India.

Mongolia’s natural resources, the main driver of the country’s economy, are a matter of foreign policy. In addition, Mongolia’s landlocked location between two giants – Russia and China – means that it requires extra effort for Ulaanbaatar to attract foreign investment from third-party neighboring countries. Hence, the India-Mongolia joint oil refinery is something to be recognized.

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

After the democratic revolution in 1991, Mongolia undertook several programs to revive its energy sector. Programs such as the Oil Program (1990) and the Oil Sharing Contract (1993) were implemented in collaboration with foreign partners and energy experts. However, none of these initiatives changed Mongolia’s energy sector, nor did they contribute to the development of a fully functioning system that would prevent Mongolia from becoming dependent on Russia and other energy-exporting countries for oil and oil 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, especially 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 the successful use of foreign policy by Mongolia’s third neighbor.

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

The successful completion of the Mongol Smelter plant will be the foundation of a new industrial sector, but it will also have positive effects on the economy at the macro level, reducing Mongolia’s foreign exchange outflow, stabilizing oil product prices and facilitating the country’s trade. the deficit

“Currently, the country’s demand for petroleum products is mainly dependent on Russian imports. The oil refinery will supply the country’s demand for various petroleum products including diesel, petrol, jet fuel, LPG and fuel oil. This would mean reducing the country’s dependence on foreign supplies, and most importantly, strengthening domestic energy supply lines,” Batnairamdal Otgonshar, Mongolia’s Deputy Minister of Mining and Heavy Industry, told The Diplomat’s Bolor Lkhaajav.

“With the plant in full operation, we expect to meet 55 to 60 percent of the domestic fuel demand. In addition, we anticipate 6,000 more jobs during the construction phases of the plant and 560 more permanent jobs after the plant is operational. The goal is to increase the GDP by more than 10 percent.’

From a regional perspective – given Ulaanbaatar’s comprehensive strategic partnerships with Beijing and Moscow – the establishment of a fully operational oil industry increases Mongolia’s importance and importance in the region.

According to Petro Matad Group, an oil exploration company headquartered in Mongolia, “In 2022, there are a total of 33 oil blocks. Four of these blocks have advanced to production, while exploration is underway in 13 blocks under PSC (production sharing contracts).

Based on Petro Matad Group’s assessment and growing interest in Mongolia’s energy sector, if implemented well, Mongolia’s oil industry can have a positive impact. As with any new industry, this creates an opportunity for human capital, trained engineers and highly specialized national mining expertise.

Despite all the positive visions and promises, these issues cannot be discussed in good faith without acknowledging the ongoing protests against mining and corruption. As in previous embezzlement cases involving Erdenet, Erdenes Tavan Tolgoi and the funds of small and medium enterprises, new industries and large developments must take another step to gain public trust by practicing financial transparency. as well as accounts.

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