Mongolian Oil Company Buys 20% Stake In North Korean Oil Refinery To Ease Dependence On Russia

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June 19, 2013 6:30 AM EST

A Mongolian oil trading and processing company, HBOil, said that it will supply crude oil to North Korea's Sungri refinery and has also bought a 20 percent stake in company for as much as $10 million. Mongolia is pushing to reduce its dependence on Russia and China as its population and economy grow.

The refinery will start operations in around a year, according to Bloomberg, and Mongolia will re-import the refined products to meet market demand.

"There are certain risks, but other countries do business with North Korea so I am quite optimistic that the project will be successful," Ulziisaikhan Khudree, HBOil's CEO, told Bloomberg.

North Korean entities, even state-run operations like Sungri, are being urged to increase international deals and attract foreign trade.

Mongolia has good relations with its diplomatically and economically isolated partner, North Korea, as evidenced by Mongolia's offer to help Kim Jong Un implement economic transitions when he rose to power, and it offered to help broker a peaceful solution between North and South Korea after Pyongyang declared in March that it was in a state of war with Seoul.

Even so, the formerly communist Mongolia of 2.9 million appears more focused on improving its economy. Not only is Mongolian oil production low, but the country lacks processing capacity and has to rely on Russia for more than 98 percent of its oil and gets the rest from China. In December, Mongolia reduced its petroleum imports from Russian oil giant Rosneft by 25 percent. Then in May, the first "Mongol 93" fuel was produced from oil extracted in Mongolia and exported to China.

The Mongolian economy grew 12.3 percent in 2012, compared with 17.5 percent in 2011, according to its central bank.

HBOil, which recycles fuel used by mining companies in Mongolia, also said that it is "studying the potential to expand its oil product processing and manufacturing business into [North Korea]."

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