NORINCO provides $388 million PxF facility for Dornod–Sainshand Oil Pipeline Project

$388.06M USD

Funder	Glory Town Holdings Limited
Recipient Organization	Erdenes Tavan Tolgoi LLC (ETT)
Country	Mongolia
Start Date	Apr 14, 2022
End Date	Feb 22, 2028
Duration	2,140 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`102670`

Grant Description

NORINCO provides $388 million PxF facility for Dornod–Sainshand Oil Pipeline Project On November 4, 2019, NORINCO signed a strategic cooperation agreement with the Government of Mongolia and Erdenes Tavan Tolgoi LLC (ETT).

Then, on January 6, 2020, the Government of Mongolia announced its decision to transport oil from a new refinery (supported by Indian FDI) through a pipeline.

Then, the Government of Mongolia’s Ministry of Mining and Heavy Industry announced an international tender to construct the pipeline.

NORINCO International Cooperation Ltd. won the tender, and on April 18, 2020, a cooperation agreement to construct the crude oil pipeline was signed by Mongolia’s State Secretary of the Ministry of Mining and Heavy Industry, G. Nandinjargal, CEO of Mongol Refinery State Owned LLC, D. Altantsetseg, CEO of Erdenes Tavan Tolgoi LLC (ETT), B.

Gankhuyag, and the General Manager of NORINCO International Cooperation Ltd., Zhou Dian Bin.

Then, on On March 1, 2021, Mongol Refinery State Owned LLC issued a request for expressions of interest for the tender to select the contractor for engineering, procurement and construction plus financing (EPC plus F or EPCF) of the project to construct the crude oil pipeline. Roughly 20 foreign and domestic companies expressed their interest in participating in the tender.

The process to select the contractor was completed on October 20, 2021. NORINCO International Cooperation Ltd. was selected as the EPCF contractor. Then, in April 2022, the State Secretary of Mongolia’s Ministry of Mining and Heavy Industry, G. Nandinjargal, CEO of Mongol Refinery State Owned LLC, D.

Altantsetseg, CEO of Erdenes Tavan Tolgoi LLC (ETT), B.

Gankhuyag, and General Manager at NORINCO International Cooperation Ltd., Zhou Dian Bin, signed another project cooperation agreement.

During the same month (on April 14, 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 $388,064,000 pre-export finance (PXF) facility agreement (and offtake contract) with Erdenes Tavan Tolgoi LLC (ETT) for the Dornod–Sainshand Oil Pipeline Project.

📋 Loan / Grant Terms

💰 Loan Amountcarries a 2

📅 Maturity2.723 years

⏳ Grace Period0.25 years

ETT, which is a subsidiary of the Mongolian state-owned company Erdenes MGL, is responsible for repaying the loan principal with coal export receipts during the project’s construction period.

As of December 31, 2022, the borrower had made principal repayments worth $18 million and the loan's principal amount outstanding was $370 million.

However, at that time, repayments via coal export receipts were temporarily suspended until project execution and cost estimates were validated by NORINCO and ETT.

The purpose of the project is to construct a 530 km crude oil, underground pipeline that runs from the oil fields of the Tamsag basin in Matad district of Dornod province to the district of Altanshiree within the city of Sainshand in Dornogovi Province. NORINCO International Cooperation Ltd. is the EPC contractor responsible for project implementation.

The project commenced on July 2, 2022. By January 31, 2023, the project had achieved an 8% completion rate. Construction of the oil pipeline itself did not begin until April 23, 2023. By September 7, 2013, the project had completed the welding work for 124 km of the pipeline.

The project, which was originally scheduled to reach completion within 3-years of its commencement date (July 2, 2025), has been plagued by controversies and delays.

The $388 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 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 contribute 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) Oil Refinery Pipeline Project. The Chinese project title is 蒙古原油管道项目 or 蒙古国原油管道项目.
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 scheduled 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.
Several sources claim that the project was financed through an EPC+F (EPCF) arrangement. This issue warrants further investigation.
There is some evidence that ETT and Mongol Refinery State Owned LLC signed a separate loan agreement for the Dornod–Sainshand Oil Pipeline Project, whereby ETT was responsible for making monthly repayments of $3.23 million to Mongol Refinery State Owned LLC over a 10-year period (starting in July 2027). See https://ikon.mn/n/317s and https://niislel.com/%E2%80%9D%D0%AD%D1%80%D0%B4%D1%8D%D0%BD%D1%8D%D1%81-%D0%A2%D0%B0%D0%B2%D0%B0%D0%BD%D1%82%D0%BE%D0%BB%D0%B3%D0%BE%D0%B9%E2%80%9D-%D0%A5%D0%9A-%D0%BD%D1%83%D1%83%D1%86-%D0%B3%D1%8D%D1%80%D1%8D%D1%8D%D0%B3%D1%8D%D1%8D%D1%80-%D0%BD%D2%AF%D2%AF%D1%80%D1%81%D1%8D%D1%8D-40-%D0%B4%D0%BE%D0%BB%D0%BB%D0%B0%D1%80%D0%B0%D0%B0%D1%80-%D1%85%D1%8F%D0%BC%D0%B4-%D0%BD%D0%B8%D0%B9%D0%BB%D2%AF%D2%AF%D0%BB%D0%B6-%D0%B1%D0%B0%D0%B9%D0%BD%D0%B0

📚 Sources & References

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COAL SALES AND PURCHASE AGREEMENT 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.