Narrative
Full Description
Project narrative
On June 31, 2019, the Government of Mongolia signed a $501 million concession agreement with Takhilt Khairkhan Trans LLC — a subsidiary of NORINCO International Cooperation Ltd. — for the 477 km Tavantolgoi-Manlai-Khangi Paved Road Construction Project. The agreement specified that the project would be undertaken on a design-build-operate-transfer (DBOT) basis. Then, on November 4, 2019, China North Industries Corporation (NORINCO) signed a strategic cooperation agreement with the Government of Mongolia and Erdenes Tavan Tolgoi LLC (ETT). Two months later, in January 2020, Mongolia Logistics Company and Takhilt Khairkhan Trans LLC signed a $366 million EPC contract for the 477 km Tavantolgoi-Manlai-Khangi Paved Road Construction Project. Then, on June 9, 2020, Glory Town Holdings Limited (輝邦集團有限公司) — a wholly-owned subsidiary of NORINCO that is legally incorporated in Hong Kong — signed a $366 million pre-export finance (PXF) facility agreement (and offtake contract) with Erdenes Tavan Tolgoi LLC (ETT) for the 477 km Tavantolgoi-Manlai-Khangi Paved Road Construction Project. The loan carries a 11.5-year maturity (final maturity date: June 30, 2032), a 1.5 year grace period, and an unknown interest rate. ETT, which is a subsidiary of the Mongolian state-owned company Erdenes MGL, is responsible for repaying the loan principal — with coal export receipts — in 20, semi-annual repayment between December 2022 and June 2032. Repayments are scheduled for June 30 and December 31 of each year. The loan is also collateralized against ETT’s future coal export receipts. Under a three-year coal sales and purchase agreement that ETT and Glory Town Holdings Limited signed in 2020, ETT agreed to sell 5.5 million tons of coal (at a price of $100.9 per ton) to Glory Town Holdings Limited until 2023. A $100 million advance payment (loan disbursement) was made under the PxF facility on June 9, 2020. However the size and timing of future payments (disbursements) are unknown. The purpose of the project is to construct a 477 km paved road from Tavantolgoi to Khangi via Manlai to export coal from the Tavantolgoi deposit to China’s coal market through the Khangi-Mandal port. Upon completion, it was expected that the road would have the capacity of 22-25 million tons of cargo (including coal and other mineral products) per year. NORINCO International Cooperation Ltd. is the EPC contractor responsible for project implementation. The concession agreement with Takhilt Khairkhan Trans LLC went into effect on January 22, 2020 and construction began in April 2020. The project’s originally scheduled completion date was December 2022. Yet, by May 2021, the project had only achieved a 1.8% completion rate (due to the Covid-19 pandemic. The road was originally scheduled to be put into operation on July 22, 2022 and remain in use for 27 years after that day. However, as of 2023, the project had not yet reached completion. 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
1. 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. 2. 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. 4. This project is also known as the Tavantolgoi-Khangi Paved Road Construction Project. The Chinese project title is “Tavantolgoi-Manlai-Khangi”重载公路. The Mongolian project title is ‘Тавантолгой-Манлай-Ханги’ чиглэлийн 470 км автозамын төсөл.