China state visit to Mongolia sees raft of rail, resource deals

ULAN BATOR Fri Aug 22, 2014 5:25am EDT

ULAN BATOR Aug 22 (Reuters) - China and Mongolia have signed 26 new deals on railroads, mining and power generation during Chinese President Xi Jinping's state visit that began on Thursday, Mongolia's Ministry of Foreign Affairs said.

Closer economic relations with China may be landlocked Mongolia's answer to recent economic woes. Mongolia saw a 70 percent fall in foreign direct investment in the first half of 2014, but its southern neighbour is aiming for an expansion of trade to $10 billion a year by 2020.

Xi's visit, the first by a Chinese head of state since Hu Jintao in 2003, could give rise to more than 30 deals, said Mongolian President Tsakhia Elbegdorj on Thursday evening during a joint press conference.

The foreign affairs ministry and the Mongolian president's press secretary both said there was at present no available figure for the value of the deals.

"Assuming these projects move forward, these accords represent the most significant economic development since the Oyu Tolgoi agreement was signed [in 2009]," said Nick Cousyn, chief operating officer at Ulan Bator-based brokerage BDSec.

The troubled $6.5 billion Oyu Tolgoi copper-gold mine between the Mongolian government and resource giant Rio Tinto , however, has been a drag on investment.

The latest development in the multi-year spat was a $130 million tax summons. Rio-controlled Turquoise Hill Resources, which owns 66 percent of the project, has denied it owes any extra tax to the Mongolian government.

RAILWAYS, POWER

Four agreements were signed on Thursday for the development of Mongolia's rail network, with two still pending.

Poor rail infrastructure has prevented Mongolia from capitalising fully on China's need for raw minerals, while at the same time its lack of access to sea ports makes it overly dependent on the Chinese market.

"Mongolia has no access to sea, so I want to emphasise the agreements between China and Mongolia that are for railway transportation," President Elbegdorj said.

Mongolia is keen to use China's rail network to deliver coal and other minerals to other Asia markets, and one of the deals will involve transhipment of resources to Chinese ports.

Elbegdorj said he and Xi had also discussed the use of the Trans-Mongolian railway as a land route for trade between Asia and Europe. The goal was to see the transport of 100 million tonnes of cargo by rail to Europe by 2020, he said.

Mongolia also needs new power plants to replace aging Soviet-era power infrastructure that is reaching peak capacity. The nation is struggling to meet energy demand as consumption grows in the capital and as the grid is extended to communities in remote parts of the country.

Mongolia has been trying to tap its own resources to kick its dependence on Russian oil imports, and one of the 26 agreements was a memorandum of understanding with China National Petroleum Corporation (CNPC).

Last year in October, Sinopec Corp signed a memorandum of understanding with the Mongolia-owned miner Erdenes Tavan Tolgoi for a coal-to-liquid fuel plant.

Mongolia hopes to encourage more such projects with a new law passed in July to update the country's regulations to include non-conventional fuels.

Erdenes TT mines coal from Mongolia's largest coking coal deposit, with 7.4 billion tons of coking coal resources.

(Editing by Tom Hogue)