Much To China’s Displeasure, Mongolia Starts Construction Of Its First Oil Refinery With $1 Billion Indian Loan

In a development that will upset the hawks in Beijing, Mongolia has started construction of its first oil refinery with India’s help.

In presence of Home Minister Rajnath Singh, who is on a three-day visit to Mongolia, the country broke ground for the construction of the refinery on Friday. Mongolia’s Prime Minister U Khurelsukh was also present during the ceremony.

The oil refinery, which is to come up at Altanshiree Soum in the country’s Dornogobi province, has been financed by India through a $1 billion Line of Credit extended after Prime Minister Narendra Modi visit to Mongolia in 2015.

The refinery will reportedly have the capacity to process 1.5 million metric tons of oil per year. It will produce 560,000 tons of gasoline, 670,000 tons of diesel fuel and 107,000 tons of liquefied gas annually. According to DD News, the refinery could boost Mongolia's gross domestic product by 10 per cent. Mongolia will use the refinery to process its own crude oil, which is now sold to China.

Mongolia’s relations with China have experienced some turbulence in the last few years. Dalai Lama’s visit to the country in 2015 led to a chill in relations. In response to the leader’s visit, China imposed fees on imports from Mongolia and started charging additional transit costs to force the country into submission.

China is Mongolia’s largest trading partner, and 90 per cent of its exports go to the southern neighbour. In 2017, Mongolia elected Khaltmaa Battulga, a fierce critic of China, as the country’s president. During his campaign, Battulga had called for greater economic independence from Beijing, criticised its policies and advocated a “third neighbour policy” to focus beyond Russia and China.

Mongolia has been warming up to India to limit Chinese influence in the country and its dependence on Beijing. The Modi government invited to the newly-elected Mongolian President to visit India even as New Delhi and Beijing were caught up in a tense military standoff in Doklam. He is likely to visit India in 2018.