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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

Mongolia wants Russia-China Pipeline to go Through its Territory

Jul. 11 – Mongolia has offered Russia and China to save 1,000 kilometers of planned natural-gas pipeline by altering the route to pass through Mongolian territory. The new route would be economically beneficial for Gazprom and the Chinese National Petroleum Corporation, and would also allow Mongolia to reduce air pollution in Ulaanbaatar.

The capital city of Mongolia was recently ranked by the World Health Organization as the world’s second most polluted city due to widespread use of coal-fired stoves.

“We are trying to persuade our two neighbors not to exclude us from that project. The Chinese side has already agreed to discuss this and also the Russian side,” Mongolian President Tsakhia Elbegdorj said in an interview with Bloomberg.

The country’s leadership is trying to raise this critical issue for the second time in the last eight months. In December 2011, a local civic group asked Mongolian Prime Minister Sukhbaatar Batbold to seek approval from Russia and China for gas pipeline to pass through the country.

Sandwiched between Russia and China, Mongolia relies on Russia for almost all of its oil supply. Because of this, the biggest foreign investor in Mongolia, the Rio Tinto Group, is due to begin importing power from China this year to help run its US$7 billion copper and gold mine in southern Mongolia when it begins. Meanwhile, Western Mongolia runs entirely on electricity imports from Russia, according to data published by London-based Oxford Business Group this March.

Mongolia, which is struggling to end power shortages that threaten to hold back the development of country’s economy, plans to form a trilateral working group to study changing the gas route, according to Elbegdorj.

The gas is to flow through the 2,800 kilometer-long (1,700 mile-long) Altai pipeline, which connects Western Siberian gas deposits through to the Russian Far East, the western part of China, and then connects to the Chinese East-West pipeline down to Shanghai.

Meanwhile, the pipeline project is criticized by Russian domestic environmental organizations because it’s planned to run across the Ukok Plateau, which is the natural habitat of the snow leopard and other endangered species. Besides, Altai national leaders fear that laying the pipeline and accompanying technical highway will pave the way for Chinese expansion into Russian Altai.

It is estimated that Russia will supply over 30 billion cubic meters of gas to China via the Altai pipeline. According to the official forecast of the Chinese government, the country will need to import about 300 billion cubic meters of natural gas by 2020.

Gazprom and CNPC, which haven’t yet agreed on the starting price of supplies, will hold the next round of talks on gas supplies this month, Alexander Medvedev, deputy chief executive officer of the Moscow-based gas producer said on June 24.

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