Narrative
Full Description
Project narrative
In August 2022, the Chinese Government and the Government of Mongolia a Memorandum of Understanding (MOU) regarding the Gashuunsukhait-Gantsmod Railway Border (Port) Crossing Project. Then, on May 1, 2023, during a visit to China by Mongolia’s Minister of Foreign Affairs Batmunkhiin Battsetseg, the Chinese Government and the Mongolian Government agreed to intensify the construction work at the Gashuunsukhait-Gantsmod railway border-crossing port. On October 18, 2023, at the Third Belt and Road Forum in Beijing, China Shenhua Energy Company Limited and Erdenes Tavan Tolgoi LLC (ETT) signed a pre-export finance (PXF) facility agreement worth approximately $300 million for the Gashuunsukhait-Gantsmod Railway Border (Port) Crossing Project. The borrowing terms of the loan (PXF facility) are unknown. However, it is known that ETT, which is a subsidiary of the Mongolian state-owned company Erdenes MGL, is responsible for repaying the loan with coal export receipts (through a contract between ETT and China Shenhua Energy Company Limited that involves the sale of 20 million tons of coal each year). The purpose of the project is to construct (a) a 32.7 km railway between Gashuunsukhait and Gantsmod, and (b) a 9.1 km Estakadan bridge that is 31 meters above the ground and capable of transporting 30 million tons of cargo per year. The project will take place in Khairkhan soum (district) and Khanbogd soum (district) within Ömnögovi (Umnugobi) province. Upon completion, the Gashuunsukhait-Gantsmod border port is expected to increase economic growth by 1.8-3.2 percent per year, generate an average value of $4.8-$5.4 billion, create about 5,000 new jobs and 1,800-3,200 indirect jobs. China Railway Design Corporation is the contractor responsible for project design and Tavantolgoi Railway LLC -- a Mongolia state-owned enterprise -- is responsible for project implementation. Construction was originally scheduled to commence in April 30, 2024. However, as of June 2024, there was no evidence that project implementation had commenced.
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. 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. 3. China Shenhua Energy Company Limited, also known as Shenhua, China Shenhua, or Shenhua Energy, is the largest state-owned coal mining enterprise in Mainland China, and in the world. It is a subsidiary of Shenhua Group. 4. The Chinese project title for the Gashuunsukhait-Gantsmod Railway Border (Port) Crossing Project is 甘其毛都—嘎顺苏海图口岸跨境铁路项目. The Mongolian project title is Гашуунсухайт-Ганцмод боомтуудыг холбох хил дамнасан өргөн, нарийн царигийн төмөр.