Mongolia is a large, landlocked country sandwiched between Russia to the north, China to the south. Since the 1990s Mongolia has a free market economy and open to all foreign business and trade. It is rich in natural resources and livestock. The mining sector has been flourishing and oil exploration and extraction has been going on since 2000.  

Although Mongolia is self-sufficient in oil and has its own oil fields, almost all of its crude oil is exported unprocessed, mainly to China, while most of its finished petroleum products are imported from Russia. In recent years domestic petroleum demand has been growing due to increased activity in the mining industry as well as the surge in usage of domestic vehicles throughout the country. In the last five years 25-30% of Mongolia’s total imports have been petroleum products. 

The lack of domestic processing facilities, combined with export and import dependency on both neighbours, creates ongoing imbalance and vulnerability in Mongolia’s economic development and threatens its national security. Today the volatile fuel price in Mongolia has become everybody’s headache. When the fuel price goes up, the price of everything goes up accordingly.

Now, thanks to its ‘third neighbour’ India, Mongolia will at last be able to have its own oil refinery. Plans to build this at Altanshiree, in the south-eastern province of Dornogovi, have been welcome news for all Mongolian citizens.

Construction costs of approximately $1.25 billion will be funded by a loan from India. The construction will be starting this spring and is expected to be completed by 2023. 

The Refinery will be built by the state-owned Mongol Refinery LLC, while Engineers India Ltd, also an SOE, will provide the project management consultancy for the development of the construction. It will have the capacity to process 1.5 million tonnes of oil annually which though small by international standards, will be sufficient to meet 75% of domestic demand. The Refinery will produce liquified petroleum gas, petroleum, diesel and aviation fuel.     

As noted by D. Altantsetseg, Executive Director of Mongol Refinery, this ground-breaking new project has had to start from scratch, including all its supporting infrastructure. 27 km of railway and 17.5km of truck roadway linking Altanshiree to Sainshand, the major town in Dornogovi, have already been completed, as well as the 110kw electricity transmission line. Affordable housing, offices and service facilities for the Refinery will be built. 

Moreover, within the timeframe of the project, India will contribute greatly to training workers at Altanshiree in the new skills they will need. The Government of India is offering young employees 100%  sponsored study in India. At the same time, the Mongolian Government is also beginning to organise overseas training for skilled workers. The President of Azerbaijan has provided fully-funded training for two Mongolia students at the State Oil and Industry University in Azerbaijan.     

India’s Ambassador to Mongolia notes that historically India and Mongolia have enjoyed friendly, cultural and educational relations dating back many years. The new Refinery project will deepen and strengthen India’s future economic cooperation with Mongolia, its strategic partner and an important third neighbour. According to India’s Petroleum Minister Bradhan, this project will further strengthen bilateral cooperation in the information technology and energy sectors. He also noted the possibility of Mongolia supplying India’s demand for natural resources including coking coal. In May 2019 the first India-Mongolia Oil and Gas Expo was held in Ulaanbaatar, with around  30 Indian companies seeking collaboration in Mongolia’s energy sector.  

Once the Refinery comes on stream, it is expected to boost Mongolia’s GDP by around 10%, reducing dependency and currency flows abroad, enabling a stable domestic fuel market, improving the skilled domestic employment rate and stimulating downstream technological and business growth. 

At the strategic level, improved collaboration with India as a major ‘third neighbour’ is timely, creating breathing space for Mongolia outside the closed cycle of reliance on its two overpowering neighbours. This in itself is a major step forward.