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NORINCO provides $336 million PxF facility for Tavan Tolgoi (TT) Coal Washing Plant Project

$336M USD

Funder	Glory Town Holdings Limited
Recipient Organization	Erdenes Tavan Tolgoi LLC (ETT)
Country	Mongolia
Start Date	Apr 01, 2022
End Date	May 14, 2031
Duration	3,330 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`102643`

Grant Description

NORINCO provides $336 million PxF facility for Tavan Tolgoi (TT) Coal Washing Plant Project On November 4, 2019, NORINCO signed a strategic cooperation agreement with the Government of Mongolia and Erdenes Tavan Tolgoi LLC (ETT).

Then, in April 2022, Glory Town Holdings Limited (輝邦集團有限公司) — a wholly-owned subsidiary of China North Industries Corporation (NORINCO) that is legally incorporated in Hong Kong — signed a $336 million pre-export finance (PXF) facility agreement (and offtake contract) with Erdenes Tavan Tolgoi LLC (ETT) for the Tavan Tolgoi (TT) Coal Washing Plant Project.

📋 Loan / Grant Terms

💰 Loan Amountcarries a 4-year maturity (final maturity date: 2025) and an unknown interest rate

📅 Maturity4 years

ETT, which is a subsidiary of the Mongolian state-owned company Erdenes MGL, is responsible for repaying the loan principal with cash ($34 million) and coal export receipts ($302 million).

As of December 31, 2022, the borrower had made principal repayments worth $29 million and the loan’s principal amount outstanding was $307 million.

The purpose of the project is to construct a facility at the Tavan Tolgoi coal mine to wash mined coal in order to increase its sales value.

The Tavan Tolgoi coal deposit is located in the Gobi Desert within South Gobi (Ömnögovi) Province (exact locational coordinates: 43.597948, 105.222627).

China No. 15 Metallurgical Construction Group Co., Ltd. (15MCC or 十五冶对外工程有限公司) – a subsidiary of China Nonferrous Metal Mining (Group) Co., Ltd. – is the EPC contractor responsible for project implementation. As of December 31, 2022, the project had only achieved a 21% completion rate.

It was originally expected to reach completion in July 2023. NORINCO indicated the plant was put into operation in July 2024. However, the project has been plagued by controversies and delays.

The $336 million pre-export finance (PXF) facility agreement (and offtake contract) between NORINCO’s subsidiary (Glory Town Holdings Limited) and ETT was originally protected by a secrecy clause. It was neither submitted to Parliament for approval nor disclosed to the public. Public unrest related to alleged coal theft from ETT prompted greater transparency.

In December 2022, allegations about the embezzlement of revenues through illegal coal sales by ETT sparked protests in Mongolia. ETT and government officials allegedly embezzled $12.8 billion USD of coal profits.

In response, the Mongolian authorities took steps to improve ETT’s operational transparency, by appointing the Ministry of Finance’s State Secretary as the full power representative of the government at ETT.

The Government of Mongolia also passed an emergency resolution to declassify ETT contracts and to hire an international audit firm to look into ETT’s operations.

Five contracts related to two infrastructure projects with a domestic contractor, Bodi International LLC, were declassified.

However, NORINCO denied the authorities’ request to disclose the contracts for the other two projects, on account of the confidentiality clause.

According to the IMF, the contracts with NORINCO (via Glory Town Holdings Limited) ‘heighten contingent liability risks for the government, should ETT’s financial position deteriorate’ but ETT’s ‘efforts to renegotiate the contracts with Norinco International have had limited success.’ In addition to these efforts, former ETT CEO Battulga Ganhuyag was arrested on December 8th, 2022 along with seven other officials involved in the corruption scandal.

According to an August 2025 World Bank report, '[w]hile neither ETT nor the individual projects have an explicit guarantee from [the Government of Mongolia], given the strategic importance of ETT and the NRP projects, it is likely that the authorities would step in if ETT were to face difficulties in meeting its obligations.

The risk that this contingent liability could materialize is exacerbated by the large volume of ETT future coal production already pledged to meet separate advance payment contracts (64.4 million tons, equivalent to one to two years of production), ETT’s mixed performance, and the opaque financial management and poor performance of ETT’s parent SOE, Erdenes Mongol.'

📋 Staff Comments

Erdenes Tavan Tolgoi LLC (ETT) — also known as Erdenes Tavan Tolgoi JSC — is a subsidiary of the Mongolian state-owned company Erdenes MGL. It is Mongolia’s largest coal-exporting state-owned enterprise. It was founded on August 27, 2010. According to the Resolutions of Mongolian Parliament and Government, Erdenes Tavan Tolgoi JSC started to operate since December 23, 2010, as a subsidiary of Erdenes Mongol LLC to mine the Tavan Tolgoi coal deposit. The main operation of Erdenes Tavan Tolgoi JSC focuses on putting strategic mine deposits into economic activities, carrying out exploitation on the deposits, and implementing infrastructure projects. Erdenes Tavan Tolgoi JSC has 588 employees, all of whom are Mongolians.
According to a report published by the IMF in October 2023, ‘[t]he [offtake] agreements [with Glory Town Holdings Limited] are expected to raise ETT, and Mongolia’s, external liabilities. The agreements are akin to collateralized debt instruments, since the contracted loans are collateralized by future coal export receipts, and the contracts allow for the repayment of the loan with cash or coal. […] The agreements have impacted ETT profitability and raised contingent liability risks for government debt. Since ETT is currently a profitable [state-owned enterprise] with no explicit guarantees involving the government, these contracts are not included in Mongolia’s public and publicly guaranteed debt stock aggregates at this stage. Nonetheless, the coal price discounts and sizeable cash payments included in the [offtake] contracts are likely to have impacted ETT’s profitability and reduced fiscal revenue, through lower dividends transferred to the [government] budget. Should ETT become unprofitable at a future date (e.g., due to a decline of international coal prices), its liabilities could become government debt. Furthermore, limited transparency in some of the contracts contributes to uncertainty.’3. A pre-export finance (PXF) facility is an arrangement in which a commodity producer gets up-front cash from a customer in return for a promise to repay the customer with that commodity (possibly at a discount) in the future. PXF funds may be advanced by a lender or syndicate of lenders to a commodity producer to assist the company in meeting either its working capital needs (for example, to cover the purchase of raw materials and costs associated with processing, storage, and transport) or its capital investment needs (for example, investment in plant and machinery and other elements of infrastructure). PXF facilities are usually secured by (1) an assignment of rights by the producer under an ‘offtake contract’ (i.e., a sale and purchase contract between the producer and a buyer of that producer of goods or commodities), and (2) a collection account charge over a bank account into which proceeds due to the producer from the buyer of the goods or commodities under the offtake contract are credited. There are two key documents in prepayment finance transactions: a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the ‘Prepayment Contract’), and a loan agreement between a lender and the offtaker (the ‘Offtaker Loan Agreement’) under which the advance payment is financed.
This project is also known as the Tavan Tolgoi (TT) Coal Wash Plant Project. The Chinese project title is 蒙古 ETT 选煤厂项目.
The April 2022 offtake agreement includes a significant coal price discount. Per the contract, the price of coal is determined quarterly, based on an indexation of the weighted average of international coal prices. In practice, the base price to which the indexation is applied is set at low levels, leading to an average coal price discount of around 10 percent compared to market prices across all projects, resulting in a revenue shortfall for ETT and low export inflows into Mongolia. As the repayment schedule is fixed in US dollars, the quantity of coal to be exported to fulfill the contract is determined on the basis of the quarterly price. A lower price means a higher quantity of ETT’s coal is earmarked for repayment, and therefore a lower share of ETT’s total coal production can be sold at market price.

📚 Sources & References

Д.СУМЪЯАБАЗАР ХАМГИЙН ХЯМД УНЭЭР HYYP( ГАРГАХ ГЭРЭЭГ ХЯТАДЫН ЗЭВСЭГ УЙЛДВЭРЛЭГЧТЭЙ ХИЙЭН YY?, ХУДАЛДАН АВАГЧ КОМПАНИЙН ТЭЭВЭР ХАРИУЦСАН ТӨЛӨӨЛӨГЧДИЙН МЭДЭЭЛЭЛ, Эрдэнэс Тавантолгой ХК-ийн нүүрс худалдах, худалдан авах гэрээний мэдээлэл, НХХАГ-ИЙ МЭДЭЭЛЭЛ
COMPANIES REGISTRY, Нүүрсний экспорт: Гэрээ шатаахгүйгээр жоомоо заавал устгаарай
SCHEDULE I (Regulation 3(1) FORM OF APPLICATION
NewsWire Issue 728, 'USD 1.5 billion factory and uncertainties surrounding raw materials', ХУУРАЙ АРГААР НҮҮРС БАЯЖУУЛАХ ҮЙЛДВЭР 7 ДУГААР САРД АШИГЛАЛТАД ОРНО
Mongolia Economic Update Robust but Unbalanced Growth
Oil refinery construction project: Mongolia to no longer be dependent on gasoline imports
Construction of Oil Pipeline for the First Oil Refinery in Mongolia Starts
EuroChamber newsletter 22 December 2023, ҮББХ: Газрын тос боловсруулах үйлдвэрийн бүтээн байгуулалтын явцын талаар мэдээлэл сонсож, Байнгын хорооны тогтоол баталлаа, МОНГОЛ УЛСЫН ШАДАР САЙД С.АМАРСАЙХАН ТАНАА
Mongolians protest alleged theft of coal sold to China
Norinco Group to Contribute to China-Mongolia Economic Corridor Construction
Cooperation agreement for project to construct a crude oil pipeline signed
Cooperation agreement for project to construct a crude oil pipeline signed
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ERDENES TAVAN TOLGOI BECOMES DEBT FREE, “MINING-INFRASTRUCTURE-INDUSTRY” DEVELOPMENT MODEL, Бүртгэлийн бүрдүүлэлт
北方国际第二季度新签项目金额7.45亿美元
十五冶对外工程有限公司中标蒙古国ETT选煤厂钢结构及设备安装工程, 3 - Bid Forms For Technical Proposal, 2 - Instructions To Bidder
北方国际合作股份有限公司 NORINCO International Cooperation Ltd. （北京市丰台区南四环西路188 号12 区47 号楼3 层（301,302））配股说明书
MONGOLIA 2023 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT (Country Report No. 2023/348)
蒙古国ETT选煤厂EPC总承包工程顺利交货
杨小青出席蒙古国洗煤厂项目投产运行仪式
First suspects in coal theft arrested in Mongolia
Mongolia to take mining firm public after protests over graft
Mongolians attempt to storm Government Palace as protests over coal profits scandal swell
Mongolia’s coal mafia protests seem unlikely to end any time soon
Mongolia arrests ex-head of state mining company after corruption protests
MONGOLIA PUBLIC FINANCE REVIEW Loan applications and disbursements are still being received and processed as the projects continue to evolve. Ongoing monitoring and evaluation are in place to ensure project continuity.