China Development Bank pledges loan for Northern Rail (Erdenet-Ovoot) Corridor Project

On August 20, 2015, the Government of Mongolia signed a concession agreement with a consortium consisting of China Railway First Survey & Design Institute Group Co., Ltd. (FSDI, subsidiary of China Railways Construction Group), China Railway 20 Bureau Group Corp (CR20G, a wholly owned subsidiary of the China Railways Construction Group), Aspire Mining, and Northern Railways LLC for the Northern Rail (Erdenet-Ovoot or Эрдэнэт-Овоотын) Corridor Project. Under the agreement, construction was to be completed within 5 years, there was a 30 year operational concession term, and a 100% base structure was to be vested to the Mongolian government. Then, in October 2016, Northern Railways LLC (Northern Railways) — a special purpose vehicle that was established by Aspire Mining to oversee all aspects of pre-development, construction, and operation of the Erdenet to Ovoot railway — received a Letter of Intent from China Development Bank (CDB) to fund up to 75% of the total EPC contract cost of the Northern Rail (Erdenet-Ovoot) Corridor Project. As of the end of 2016, discussions with three potential financiers (China Development Bank, Asian Infrastructure Investment Bank AIIB, and the Silk Road Fund) were still ongoing. In September 2016, Northern Railways LLC committed to a stage one Rail Feasibility Study with FSDI. The study was completed in December 2016. It concluded that the project was both technically and financially feasible. Then, a formal project design was approved by the Government of Mongolia — via Government Resolution No. 10 — on January 11, 2017. Then, in October 2017, Northern Railways LLC and Aspire Mining entered into a binding Memorandum of Understanding (MOU) with China Gezhouba Group Corporation (CGGC). CGGC agreed to complete a Definitive Feasibility Study for the Erdenet to Ovoot Railway by March 31, 2018 and Northern Railways LLC agreed on a path for CGGC to acquire a 51% interest in Northern Railways LLC through further investment (see Project ID#72028). CGGC agreed to complete the second and final stage of the bankable feasibility study by the end of March 2018. Northern Railways LLC agreed to look to include CGGC and China Railways Construction Bureau 20 Group in the design, procurement and construction phases of the project. Northern Railways LLC also agreed to compensate CGGC for the work performed on the feasibility study if it was not appointed to carry out any further work on the project. Then, in February 2018, the consortium that signed the August 20, 2015 concessional agreement was expanded to include CGGC. The purpose of the Northern Rail Corridor Project is to construct a 547 km railway from Erdenet (Эрдэнэт) to Ovoot (Овоотын). As a result of this expansion to existing railway lines, the Government of Mongolia expects development of mining deposits located in the western region of Mongolia to become commercially feasible. Furthermore, the railway is expected to connect Mongolia to Kyzyl, Tuva in Russia, which would allow for coal to be transported through Mongolia from Russia’s coal-producing Tuva region and thereby generating freight revenues for Mongolia. As of October 30, 2019, construction of the railway was underway. However, it is unclear if China Development Bank ever issued a loan for the project.

Additional details

Northern Railways LLC is owned 80% by Aspire Mining Limited and 20% by the Noble Group. According to an announcement dated August 13, 2018 by Northern Railways LLC, it signed an amended concession agreement with the Government of Mongolia, which extended the date for completion of the conditions precedent from August 20, 2018 to February 20, 2020.

Number of official sources

11

Number of total sources

13