Mongolia goes for megaprojects to broaden economy

Mongolia goes for megaprojects to broaden economy
The Mongolian government has decided that if it is to break the economy's raw materials export dependency, it is time to supersize some ambitions. Pictured is the Ghengis Khan Equestrian Statue near Ulaanbaatar, the world's largest equestrian statue. / Vaiz Ha, cc-by-sa 2.0
By Michael Kohn March 18, 2025

Deep in Mongolia’s Gobi Desert, lines of trucks load up each day with coal and copper before travelling south to the Chinese border. Once over the frontier, factories and smelters turn Mongolia’s raw materials into finished projects.

The mining sector has served Mongolia well for nearly two decades but the country’s leaders are increasingly vocal about the amount of raw material exported to China. Some say it’s high time to keep some of that raw mineral wealth on Mongolian territory for processing.

To that end, officials have drawn up plans to expand Mongolia’s industrial capacity. Factories and infrastructure are in the planning stage to add value to raw materials. Officials say it’s in response to public demand.

“People are much more keen to see results. They also want to see their livelihoods being uplifted significantly,” said Bulgantuya Khurelbaatar, deputy speaker of the Ikh Khural and a member of the ruling Mongolian People’s Party (MPP). “This is only possible if we have significant, big projects. Megaprojects.”

If Prime Minister Oyun-Erdene Luvsannamsrai can get these factories built the result could be dramatic – sheets of copper and rolls of steel pouring across the border, instead of railcars filled with unprocessed minerals. Mongolia could position itself as a key player in global supply chains.

There are hurdles, of course. Questions over funding are somewhat hopeful as the projects will require billions of dollars in foreign investment. There are sustainability issues too. Mongolia is well-known for its natural beauty, wildlife and nomadic culture, all of which could be overwhelmed by rapid infrastructure development.

Despite the hurdles, officials say the projects are the quickest way to reach economic goals – chiefly a government promise to increase per capita GDP to $10,000, up from the current level of $7,580. 

The (really) big 14 

The prime minister has outlined 14 so-called megaprojects, including mineral processing centres, water diversion projects, dams and power plants.

The government has made significant inroads on two of them.

In January, Mongolia signed an agreement with France to develop a uranium mine in the southwest province of Dornogovi (East Gobi). Then in February officials completed a deal with China to develop a cross-border rail line at the Gashuunsukhait-Gants Mod crossing, where most of Mongolia’s coal crosses the border.

Both projects have been years in the making, spanning multiple administrations. Actual construction of the two projects will take years but moving them forward helps Oyun-Erdene build a case for more development.

A 450-megawatt coal-fired power station, planned for the coal-rich Tavan Tolgoi area, could be next to move forward. Mongolia has long sought ways to improve energy independence and wean itself from energy sources in Russia and China.

Oyun-Erdene is also prioritising more railways and cross-border rail links to support the country’s mining sector. Once these are in place, officials want factories capable of processing Mongolia’s mineral wealth. The list of megaprojects includes a steel manufacturing plant, a copper smelter and an oil refinery.

Politics plays a part

The timeline for these projects isn’t set in stone but they are being prioritised in the government’s 2024-2028 action plan.

To move them forward as quickly as possible the MPP formed a coalition government with the Democratic Party after the parliamentary elections last year. The MPP could have ruled by itself but wanted to remove barriers to development.

“When almost half the Parliament becomes an opposition, it's quite difficult to push forward for some of these big, megaprojects,” Bulgantuya said. 

Forming a coalition helped Mongolia to wrap up the uranium deal with France. It could also make it easier for the government to move on projects that usually create friction in rural communities, including the damming of rivers for hydropower.

Projects include diverting water from north-flowing rivers like the Orkhon Gol to Southern Mongolia where it can be used for mining.

Minister of Mining Tuvaan Tsevegdorj, left, hopes to have plenty of on-site inspections scheduled for coming years (Credit: ceo_oyutolgoi, Instagram).

“Most of Mongolia’s rivers flow out [of Mongolia]. We are trying to keep a certain amount of those waters within our borders,” Minister of Mining Tuvaan Tsevegdorj said in an interview with bne IntelliNews. “That is the policy.”

Tuuvan says hydro and water diversion will be done in consultation with Russia and will be sustainable. The plan to divert water, for example, only applies to when it reaches flood stage, he said.

The government also says it will protect traditional nomadic culture, even as roads, railways and industrial sites appear on land normally used by herders. Nomads will still have access to millions of acres of unfenced land across the country, said Nomin Chinbat, Mongolia’s Minister of Tourism.

“We want to keep [the nomadic lifestyle] alive just as it has been for the last 2,000 years,” said Chinbat. 

Hefty price tag

The total price tag for these projects will run far into the billions but officials say taxpayer money won’t be risked. Instead, private entities and foreign investors are being courted to pay for the projects.

The uranium mine, for instance, will be built with a $1.5bn investment by Orano of France. The 90-MW Erdeneburen hydropower power plant (HPP) is a $280mn project with full funding by Chinese investors. The planned oil refinery will be paid for with a $1.7bn investment from India.

Mongolia already has experience in courting large foreign investment. Anglo-Australian miner Rio Tinto paid for the massive Oyu Tolgoi copper mine, a $7bn investment. But it hasn’t been an easy marriage with Rio. Ulaanbaatar’s relationship with Rio and other foreign investors has been punctuated with holdups and disputes, and the slowing down or mothballing of projects.

Tuvaan, the mining minister, says rocky relationships with foreign investors are in the past. The current administration is better prepared for large-scale investments, he said. The Orano agreement with France is intended to chart a new path.

“We believe the Orano [uranium] project will bring a message to international investors that the Mongolian government is committed to foreign investment,” Tuvaan said. “We follow laws and regulations. We are committed to agreements, not changing our minds on the way.”

Mixed support

The megaproject plans have met with mixed opinions in Mongolia. Bulgantuya, the deputy parliament speaker, describes “a lot of kickback and lashback” when the project funding is discussed. Change is often met with hesitation, she said.

Recent history shows that the Mongolian public is wary of foreigners looking to exploit their country’s resources. Rio Tinto in particular struggled to gain public trust when Oyu Tolgoi was being built.

Some politicians have also expressed concern, even some within the ruling coalition. They include Jargalan Batbayar, a member of parliament representing the Democratic Party, who prefers a more balanced economy that is less reliant on the mining sector and more focused on cashmere and other agricultural products.

“I think we should stop thinking in terms of value-added supply chains, involving copper [and other minerals],” Jargalan said. “This only serves to lock us into an industrialisation path.”

Jargalan also doubts foreign investment will pay for it all and anticipates increased national debt. Some of the projects are little more than “white elephants” she says, indicating that there will be a high price to pay with little return.

“Quite costly and not economically viable,” Jargalan said. “They would only exponentially increase our foreign debt and exert undue pressure on the tughrik [local currency].”

Government officials appear open to hearing concerns but with three years before the next elections they are unlikely to be in a hurry to change course or slow down the plans to develop.

“We understand that there are varying voices,” said Bulgantuya. “But at the same time, these big projects support foreign and even domestic investment and still need to go ahead.” 

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