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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Construction on First Mongolian Oil Refinery Postponed to 2015

Jul. 23 – Construction on the Darkhan-Petroleum oil refinery with an annual capacity of 1.7 million tons of liquid fuel – which would be sufficient to supply Mongolia’s entire demand of gasoline, diesel and jet fuel – has been postponed to the end of 2015. Originally it was planned to begin operation in 2014.

The Mongolia-Japan joint refinery in Darkhan-Uul aimag would have a processing capacity of 44,000 barrels per day of crude oil, or 2 million tons a year, and it would be able to produce 1 million tons per year of diesel fuel, 630,000 tons annually of gasoline and 60,000 tons per year of jet fuel.

The Japanese part of the joint project, the Marubeni and Toyo Engineering Corporation, is in charge of engineering, procurement, construction, maintenance and operation of the plant, with an expected total construction cost of more than US$600 million.

“Our gasoline will be 30 percent more efficient than the fuel Mongolia uses today,” Fumiya Kokubu, Vice President of the Marubeni Corporation, assured the Mongolian press. Using the latest Japanese technology, the oil at the refinery will be processed through 14-15 different operations before it becomes a final product for sale.

According to preliminary estimations, the refinery will contribute around MNT340 billion to the state budget per year, while the initial loans and funding will be paid back roughly four to five years after full scale operation commences.

“When construction is finished, hopefully with no postponements by the end of 2015, technical testing and calibration will run for the first two to three months. Considering this, our first products will be out on the market by the beginning of 2016,” T.Namjim, CEO of Darkhan Oil Refinery Project LLC explained.

The Darkhan refinery would be the first of its kind in Mongolia, which is still heavily dependent on diesel, gasoline, jet fuel and other oil product imports from Russia. However, the crude oil will still be imported from Russia to be used.

Last year, Russia introduced a ban on oil exports for a month, including to Mongolia, which led to a shortage of oil products all over the country as well as significant price hikes.

Darkhan plant management hopes that a long-term agreement recently signed between Mongolia and Russia will held to avoid such a re-occurrence in the future.

“Besides, Russia joined the World Trade Organization this year, so there will be no problems with prohibitions and restrictions on oil,” T.Namjim told the local press.

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