Minister of Industry and Mineral Resources Tuvaan Tsevegdorj presented the draft agreement, adding that Mongolia has been implementing the project to build an oil refinery with the financing of a concessional loan from the Exim Bank of India since 2017. The Parliament ratified the loan agreements for a total of $1 billion 236 million to finance the project in 2017 and 2019.
"During the implementation of the project, the Mongolian Oil Refinery reported an increase in the budgeted cost of the EPC-4 package of works, which includes the construction of the main plant. The increase in the project cost was discussed by the Mineral Resources Expert Council under the Ministry of Industry and Mineral Resources in September 2023, and the total cost of the project was confirmed to be $1 billion 698 million, or $462.2 million more than the previously budgeted cost. Accordingly, the government held negotiations with the Exim Bank of India on a loan agreement to fund the additional financing required for the Oil Refinery Construction Project," he noted.
Since the additional funding of $464 million from the Indian side will be spent within the framework of the EPC-4 package, the loan agreement of $236 million approved in 2019 will be canceled and the funding will be added to the proposed new loan agreement totaling $700 million.
In addition to the previous agreement terms, there will be three new conditions included from the Indian side. Specifically, if additional financing is required for the project, the government of Mongolia will provide financing; all income from the project will be transferred to the Mongolian Oil Refinery LLC's bank account in Mongolia; if the government fails to fulfill its obligations under the loan agreement or fails to pay the loan on time, the account of the Mongolian Oil Refinery LLC will be frozen and the payment will be directly deducted from the company's income; and the Exim Bank will be consulted on any issues that may put pressure on the company’s income until the loan agreement expires until 2040 or until repayment is complete.
The loan for the additional financing, like the previous loans, has an annual interest rate of 1.75%, a service fee and a capital reserve guarantee fee of 0.5% each, a 5-year principal waiver, and a total repayment period of 20 years. This loan agreement is crucial for the completion of the Oil Refinery Project, which is one of the 14 mega projects included in the government's 2024-2028 Action Plan.
At the meeting of the Standing Committee on Economics, 12 out of 17 members of the Standing Committee voted in favor of supporting the draft loan agreement between the government of Mongolia and the Export-Import Bank of India. Therefore, the conclusion of the Standing Committee on Economics will be presented to the Standing Committee on Budget and the Standing Committee on Security and Foreign Policy.
