Milli Majlis discusses air services agreement with Mongolia www.report.az

The air services agreement between Azerbaijan and Mongolia, which will create a legal framework for the transportation of passengers, baggage, cargo and mail between the two countries, has been submitted for discussion by the Milli Majlis.

According to Report, the document was considered at today's meeting of the parliamentary Committee on Economic Policy, Industry and Entrepreneurship. The agreement was signed on May 6, 2026, in Leipzig.

The document sets out the procedures for organizing international air services along agreed routes and regulates the activities of airlines designated by the parties. Each country grants the other the right to operate flights over its territory without landing, make stops for non-commercial purposes, and provide air services along the routes specified in the annex to the agreement.

The parties reaffirm their international obligations to prevent unlawful interference with civil aviation operations and undertake to assist each other in the event of such threats. The document regulates the mutual recognition of certificates and licenses, consultations on aviation safety issues, and ramp inspections of aircraft.

B.Purevdagva: 5000 households have switched to gas stoves www.gogo.mn

On September 16, Ulaanbaatar City Governor B.Purevdagva provided an update on preparations for the 2026–2027 winter season, saying that 83% of the planned work has been completed.

“We focused on winter preparations throughout the summer. Of the 573 projects and programs planned, 83% of the work has been completed so far. The heating season began on September 15. To improve air quality, 280,000 tons of semi-coke fuel and 180,000 tons of improved fuel produced from middlings will be consumed this winter. Ulaanbaatar City will sell these fuels at 446 designated locations.

To improve air quality, 280,000 tons of semi-coke fuel and 180,000 tons of improved fuel produced from middlings will be consumed this winter.

Fuel supplies to these locations must be maintained consistently. Last year, some distribution points ran out of fuel. This year, the improved fuel will be packaged in 25-kilogram bags in accordance with production standards. We plan to deploy 200 trucks to deliver fuel during the night.

This winter, 5,000 households have switched to gas stoves. If the gas stove initiative proves successful, we plan to expand the program in 2027–2028. There are 273 boiler units in the city, which account for 12% of air pollution. 8 of these units have already been converted to gas, which is expected to reduce air pollution by 5.6%.

Thermal Power Plant No.5, which will have the capacity to supply heat to 50,000 households, is currently under construction and is scheduled to become operational in 2028. Construction of the Dambadarjaa Thermal Power Plant is also 70% complete, with plans to commission it in 2028. 20% of the total cost of these power plants is being financed from the state budget, while the remainder is being funded through public-private partnerships. Measures are also being taken to reduce the load to 71% by 2030.

In cooperation with BYD, the ‘Sky Shuttle,’ a high-capacity public transport system, will be introduced in Ulaanbaatar. Work is underway to complete the project's feasibility study by December this year, with the aim of launching the service within the next two years. This initiative is expected to help ease traffic congestion.

Approximately 350 kilometers of bicycle lanes are planned for construction next year.

Road construction and maintenance work has also been carried out. A total of 111 kilometers of new roads were constructed, while 31 kilometers of existing roads were repaired. In addition, 76 kilometers of bicycle lanes were built during the summer. Approximately 350 kilometers of bicycle lanes are planned for construction next year.

Currently, 1,300 public transport vehicles are ready to operate in the capital. Preparations for the winter season's fuel supply have been completed, with a nine-day reserve of 450 tons secured. More than 90% of the required salt and de-icing materials have also been stockpiled, including 11,000 tons of salt and 10,000 tons of de-icing materials”.

EBRD and GCF launch Mongolia GEFF Greening Financial Systems framework www.ebrd.com

The European Bank for Reconstruction and Development (EBRD) and the Green Climate Fund (GCF) are encouraging more households and businesses in Mongolia to invest in green and innovative measures that promote the efficient use of water, sustainable land management and greater resource efficiency by launching the next phase of GEFF, Greening Financial Systems (GFS) framework in the country’s capital Ulaanbaatar.

Although officially announced today, the GFS has already started operating in Mongolia. Earlier this year, the EBRD approved a loan of US$ 80 million (€ 69 million) to Khan Bank under the framework, as part of a wider US$ 170 million (€ 146 million) financing package. Other financial institutions are expected to join the GFS soon.

The new framework will move beyond traditional project-based green lending. It will help Mongolian financial institutions to make climate-related considerations an integral part of their strategy, governance and risk management – making green finance part of mainstream banking rather than a separate line of business.

It builds on the EBRD and GCF Green Economy Financing Facility (GEFF), established in 2018 and has since expanded into a US$225 million financing framework. The GEFF has so far supported more than 330 subprojects across various sectors of the Mongolian economy, giving access to greener technologies ranging from energy-efficient buildings to renewables and resource-efficient equipment. It helped to deliver annual energy savings of around 2 million gigajoules and reduced annual carbon emissions by almost 150,000 tonnes.

Mongolia is known for its extreme weather conditions and vulnerability to the negative impacts of climate change. Its energy system remains carbon-intensive, and needs substantial investment in energy efficiency, renewable energy, resilient infrastructure and the sustainable use of natural resources. The GFS will help to address these issues by combining affordable climate finance with institutional capacity building.

The new global US$ 620 million (€ 533 million) initiative combines EBRD loans and GCF concessional financing for lenders across 13 countries from the southern and eastern Mediterranean to Mongolia. It is supported by grants worth US$ 49 million (€ 42 million). The GFS will be aiming to channel at least 20 per cent of available funds to support women-led businesses, and around 30 per cent to target businesses in rural areas. This component will be supported by the government of Canada under the High-Impact Partnership on Climate Action (HIPCA)*.

Over the past two decades, the EBRD has financed 172 projects worth a total of US$ 3.2 billion (€2.8 billion) in various sectors of the Bank’s most easterly investee economy. Ninety per cent of the Bank’s loans in the country have been extended to private companies, making the EBRD the largest lender to Mongolia’s private sector among the international financial institutions.

* Active HIPCA donors include: Austria, Canada, Finland, Germany, the Netherlands, Norway, the Republic of Korea, Spain, Switzerland, TaiwanICDF, the United Kingdom and the United States of America.

Mongolia plans new mortgage package at 6 then 12 percent www.streamlinefeed.co.ke

Mongolia will introduce a mortgage package charging 6 percent interest for three years then 12 percent for seven, Finance Minister Z. Mendsaikhan said, aiming to clear a queue of tens of thousands waiting for subsidized housing loans.

Commercial banks have received about 45,000 applications for the existing 6 percent mortgage on a cumulative basis, Mendsaikhan said, and the new package is being designed with the Bank of Mongolia, IKon reported.

How the package works
The minister was explicit that the new product will not finance new construction. Instead it targets roughly 22,000 apartments already built by the private sector and through government foreign-loan funding, of which about 16,000 will enter use next year, allowing 16,000 citizens to be enrolled in the mortgage program, IKon reported.

Priority groups named by the minister include public servants, doctors and teachers. The package will also offer options to reduce the down payment and rent-to-own structures, giving households a path to ownership without the full upfront contribution the current program demands.

Funding is planned from abroad: the government intends to raise about $500 million, or ₮1.8 trillion, from international markets for the mortgage program, with the state budget carrying the swap cost, and the minister said the provision is already reflected in budget submissions, IKon reported.

The queue the package must clear
Demand has outrun supply for years. Mongolbank said in May that more than 47,000 citizens were waiting for the 6 percent loan, and the draft housing law presented to parliament estimates accumulated applications at commercial banks at ₮4 trillion, CNBC.mn reported. The central bank's governor noted in March that over the past decade-plus the program had directed ₮10.7 trillion to more than 140,000 households, while waits of five to six years had emerged.

Supply has also stuttered: some commercial banks temporarily paused new 6 percent disbursements until the State Great Khural's autumn session, although Mongolbank denied any decision to stop the program, saying financing continues as normal, CNBC.mn reported.

The ministry is studying a wider redesign, including tiered mortgage products at 8 to 14 percent to broaden funding sources and shorten waits, and a specialized housing finance bank that would raise resources and supply them to commercial banks rather than lend to households directly; the two draft laws were submitted on June 11, CNBC.mn reported.

Subsidized mortgages are the main route to home ownership for middle-income Mongolians, and the 6 percent product in particular has become the default expectation, IKon noted in introducing the minister's remarks. That concentration is precisely the bottleneck: the construction minister explained in June that demand focused on the 6 percent product stretches waits to four or five years and pushes excluded households toward costlier commercial mortgages, CNBC.mn reported.

What the new rates mean for borrowers
The stepped rate is a compromise between subsidy and market: six percent for three years keeps initial payments near the current program's level, while 12 percent afterward moves borrowers toward commercial pricing, which the minister's own ministry has studied in an 8 to 14 percent band. Households that expected a flat 6 percent for three decades will read the change differently from those stuck in the queue, for whom any new tranche is relief.

Mendsaikhan's figures also reveal the program's scale problem: 16,000 new enrollments against a queue of 45,000 to 47,000 clears at best a third of waiting households, leaving the tiered 8 to 14 percent products as the likely route for the remainder.

The proposed specialized bank would sit between capital markets and retail lenders, pooling mortgage funding and issuing it to commercial banks, a structure intended to decouple subsidy politics from loan supply; its draft law remains with parliament, CNBC.mn reported.

Years 1-3: 6 percent annual interest under the new package.
Years 4-10: 12 percent annual interest.
Target: about 16,000 citizens entering completed apartments next year.
Funding: about $500 million, or ₮1.8 trillion, raised internationally, swap cost in budget.
Queue: about 45,000 cumulative applications per the minister; 47,000 per Mongolbank in May.
The package arrives as legislation, not decree: the swap-cost provision sits in the budget the Khural must approve, and the specialized bank requires passage of the June drafts. Until then, the queue keeps waiting, and the minister's 16,000 figure is a promise about next year's completions, not a list of approved borrowers.

Mongolia, Russia Discuss Railway Corridors and Trade Expansion www.montsame.mn

Deputy Prime Minister Nomtoibayar Nyamtaishir held an official meeting with Alexey Logvinovich Overchuk, the Deputy Prime Minister of the Russian Federation, on September 15.

At the meeting, Deputy Prime Minister Nomtoibayar emphasized that developing broad cooperation with Russia, a country with which Mongolia shares traditional, good neighborly, and friendly relations, is a top priority of the country’s foreign policy. He noted that the Government of Mongolia is actively working to strengthen the Comprehensive Strategic Partnership and expand bilateral cooperation.

He expressed his commitment to advancing the western and eastern vertical railway corridor projects, which were discussed by the heads of state of both countries during the meeting of the Council of Heads of State of the Shanghai Cooperation Organization (SCO).

The railway will serve as a vital hub for regional trade, investment, and transport logistics. The parties exchanged views on establishing a trilateral working group tasked with coordinating the terms for railway investment and infrastructure development.

For his part, Russian Deputy Prime Minister Alexey Overchuk emphasized the importance of trade and the economic sector in expanding bilateral relations and cooperation across all fields and for building mutual trust.

Expressing appreciation for the recent intensification of political ties between the two countries, he stated that the implementation of the “Interim Free Trade Agreement” between Mongolia and the Eurasian Economic Union (EAEU) offers vast opportunities to elevate economic cooperation to a new level and increase trade turnover.

Consequently, they exchanged views on diversifying product types and ensuring a balanced trade framework within the scope of the interim agreement.

Russia-China Gas Pipeline to Run Through Mongolia: Could China Be Held Hostage? www.thechinaacademy.org

On September 2, at the Eastern Economic Forum, Russian Energy Minister Sergei Tsivilev revealed that President Vladimir Putin had renamed the planned “Power of Siberia 2” natural gas pipeline to “Power of Baikal.” According to Russia’s current plans, this second major Sino-Russian gas corridor will stretch eastward from the Yamal Peninsula and western Siberia, passing through Mongolia into China. It boasts a designed annual capacity of 50 billion cubic meters (bcm)—surpassing the approximately 38 bcm capacity of the existing China-Russia eastern route.

An energy artery of this scale, destined to carry tens of billions of cubic meters of natural gas, naturally raises a critical geopolitical question: If Sino-Mongolian relations were to sour, or if Russia leveraged its influence over Mongolia’s energy supply, could Ulaanbaatar restrict gas transit and create a strategic chokehold on China?

While third-country transit inherently introduces political risk, situating “Power of Baikai” within the broader context of Sino-Russian-Mongolian trade, energy, and market dynamics reveals a different reality. Although Mongolia may control the geographic valve, weaponizing it against China would come at an exorbitant cost. More importantly, compared to the original western route proposal—which would have bypassed third countries to enter China directly from Russia—routing the pipeline through Mongolia into northern China aligns far better with the geographic distribution of China’s natural gas demand.

The Economic Logic of the Central Mongolian Route

As early as 2006, Beijing and Moscow proposed piping natural gas directly from western Siberia into China’s Xinjiang region via Russia’s Altai Republic. Commonly known as the “Altai Pipeline” or the Sino-Russian western route, this option was shorter and capitalized conveniently on existing gas fields and infrastructure in western Siberia.

However, regarding China’s broader natural gas infrastructure layout, the Mongolian route offers comprehensive advantages that the western route simply cannot match. Xinjiang is already a major domestic gas-producing region and the primary gateway for Central Asian gas. Currently, imports from Turkmenistan, Kazakhstan, and Uzbekistan enter via Xinjiang and must travel thousands of kilometers through the West-East Gas Pipeline system to reach consumers in northern, eastern, and coastal China. Funneling Russian gas into Xinjiang via the Altai region would only exacerbate this western supply bottleneck, burdening the network with steep, long-term eastward transmission costs.

The Mongolian route fundamentally resolves this issue. Russian gas flowing south through Mongolia would enter China via Inner Mongolia, placing it right on the doorstep of core northern consumption hubs like the Beijing-Tianjin-Hebei region and Shandong province. From there, it could seamlessly integrate with the Shaanxi-Beijing pipeline network and the national trunk grid, allowing for flexible distribution to eastern China. For a strategic pipeline with a 50-bcm annual capacity and a multi-decade lifespan, minimizing the distance between the entry point and end-user markets is crucial for optimizing infrastructure investment, lowering operational costs, and maximizing commercial returns.

From an engineering perspective, the Mongolian route is also far more pragmatic. The Altai Mountains and the borderlands adjacent to Xinjiang feature treacherous mountainous terrain, complex geological structures, and protected environmental zones—including the “Golden Mountains of Altai” World Heritage site—making pipeline construction exceptionally difficult. Conversely, Mongolia’s landscape primarily consists of open steppes and deserts with sparse population density, providing a highly favorable environment for constructing large-diameter, high-pressure natural gas pipelines. Thus, while the Mongolian route introduces a transit country, it circumvents the engineering nightmare of the Altai Mountains and drastically reduces the burden of domestic eastward transmission.

Theoretically, Russia could opt to route western Siberian gas further east, running a new pipeline parallel to the existing “Power of Siberia” corridor to enter China via Heilongjiang, thereby eliminating third-country transit entirely. However, this alternative is far from cost-free.

The current “Power of Siberia” pipeline primarily serves the Kovykta and Chayanda gas fields in eastern Siberia, and its capacity is already saturated by long-term supply contracts. Pumping an additional 50 bcm of Yamal and western Siberian gas through this corridor would require massive new infrastructure spanning the breadth of Russia, including parallel pipelines along the eastern route. Furthermore, once the gas entered Heilongjiang, it would still require long-distance southward transportation to reach major demand centers in northern and eastern China.

While this approach would neutralize the Mongolian transit risk, it would exponentially inflate construction, transportation, and maintenance costs. It would also concentrate Russian gas imports at a single bottleneck in northeastern China. Ultimately, despite the third-country variable, routing the gas directly through Mongolia into Inner Mongolia offers shorter terminal transmission distances and diversifies China’s strategic entry points.

Mongolia Holds the Valve, But China Holds the Market

To gauge whether Mongolia would actually dare weaponize its transit position, one must look at the underlying economic structure between the two nations. In 2025, Mongolia’s total foreign trade stood at approximately $27 billion, with Sino-Mongolian trade accounting for $18.7 billion—a staggering 69.2%. Of Mongolia’s $15.7 billion in total exports, 89.4% went to China. Coal and copper concentrate alone comprised 82.3% of these exports. For a landlocked, mineral-dependent nation of 3.5 million people, Chinese procurement volumes and border port efficiency directly dictate domestic mining output, logistics, fiscal revenue, and employment. Should Ulaanbaatar restrict the flow of “Power of Baikai” and trigger a serious political dispute, the fallout would inevitably spill over into its vital mineral trade, port operations, and foreign investment.

Mongolia is simultaneously bound by deep constraints with Russia. According to April 2026 data from Mongolia’s Ministry of Industry and Mineral Resources, roughly 97% of the country’s petroleum product imports originate from Russia. This extreme dependence leaves Mongolia’s domestic fuel supply highly vulnerable to Moscow’s sway. When Ukrainian strikes on Russian refineries coincided with peak Russian domestic demand in the summer and autumn, tightened Russian oil exports caused Mongolian fuel costs to spike, forcing local gas stations to ration sales. More critically, the extraction and transport of coking coal—the lifeblood of the Mongolian economy—rely almost entirely on diesel. Fuel shortages directly paralyze coal mining and logistics, severely magnifying domestic economic pressure.

Consequently, Mongolia finds itself in a unique state of bilateral dependence: its energy lifeline is tethered to Russia in the north, while its economic engine relies on China in the south. This structural reality means Mongolia cannot easily side with one neighbor while bearing the cost of long-term confrontation with the other. It may sit physically in the middle of the pipeline, but it is firmly boxed in by the overriding practical interests of its two giant neighbors.

A Russian Gas Shutoff: Strategic Self-Harm

Another lingering concern is whether Moscow might leverage its energy grip on Mongolia to force Ulaanbaatar into restricting gas flows to China. However, this hypothetical must be evaluated against Russia’s own vital economic interests.

In 2025, Russia exported approximately 38.8 bcm of gas to China via the eastern route, a 25% year-on-year increase. Conversely, Russia’s pipeline gas exports to Europe have cratered. Its share of EU imports plummeted from around 45% in 2021 to roughly 12%, with volumes collapsing from 152 bcm to just 36 bcm. In just a few short years, Russia’s traditionally Europe-centric export model has been completely upended. The Yamal and western Siberian fields slated to feed “Power of Baikai” were originally developed for European consumers. With that market now radically diminished, Moscow desperately needs a new long-term buyer for hundreds of billions of cubic meters of pipeline gas. Globally, China is the only market capable of consistently absorbing volumes of that magnitude.

Given this reality, if Russia were to pour massive investments into a multi-thousand-kilometer, 50-bcm pipeline, only to subsequently pressure Mongolia into choking off the flow, Moscow would bear the brunt of the damage. It would face plummeting gas revenues, severely reduced pipeline utilization, and stranded upstream capacity. Furthermore, pipeline gas lacks the fungibility of oil. While crude can be easily rerouted to other global buyers via oil tankers, a fixed pipeline aimed at China cannot magically summon alternative buyers of equivalent scale.

Therefore, the notion of Russia manipulating Mongolia into a gas shutoff effectively amounts to strategic self-harm. Astronomical sunk costs and a profound reliance on the Chinese market make the economic toll of an intentional supply interruption prohibitively high for Moscow. Russia may control the valve at the source, but it is ultimately China that determines whether that gas translates into actual export revenue.

50 BCM is Significant, But Not Existential for China’s Energy Security

In 2025, China’s domestic natural gas production reached 262.06 bcm, complemented by 176.46 bcm in imports. Against this backdrop, the 50 bcm annual supply from “Power of Baikai” would represent roughly 11% of China’s total natural gas consumption. In short, while the pipeline would undoubtedly become a crucial energy artery, it would by no means be a single point of failure for national energy security.

This is not to say the Mongolian transit risk should be entirely dismissed. Fifty billion cubic meters still equates to nearly 30% of China’s annual gas imports. Should a supply of this magnitude be suddenly severed during the peak winter heating season, it would undoubtedly trigger short-term, localized supply crunches, spike spot market prices, and necessitate costly cross-regional dispatching and emergency LNG procurement.

However, accurately assessing this risk requires viewing China’s gas supply system holistically. Currently, domestic production accounts for about 60% of total supply, while imports are highly diversified. Onshore pipeline gas flows from Central Asia, Russia, and Myanmar, while seaborne LNG arrives from suppliers like Australia, Qatar, and Malaysia. Consequently, a temporary disruption along the Mongolian route would be met with a variety of stopgap measures, including ramping up domestic extraction, increasing flows through Central Asian or alternative Russian pipelines, and sourcing additional international LNG.

China’s rapidly expanding gas storage and pipeline networks further bolster this resilience. According to 2026 data from the National Energy Administration, national gas storage capacity has more than doubled from 23.4 bcm in 2020 to 54 bcm, while annual LNG receiving capacity now exceeds 120 million tons. While storage capacity does not equate to annual baseload supply, it provides a vital buffer to absorb short-term shocks lasting weeks or even months. Thanks to an interconnected national grid, northwestern Central Asian gas, coastal LNG, and domestic reserves can be dynamically rerouted across regions. Ultimately, a short-term disruption via Mongolia would manifest as temporary price volatility and logistical headaches rather than a catastrophic, nationwide energy crisis.

Post-Construction: Mongolia Will Be Locked into the Value Chain

Once “Power of Baikai” becomes fully operational, Mongolia’s own domestic interests will be fundamentally realigned. The pipeline will deliver a steady stream of transit fees, tax revenues, infrastructure investments, and jobs. It may also help meet Mongolia’s domestic energy needs and spur the development of ancillary infrastructure like roads, telecommunications, and power grids along the route. Over its multi-decade lifespan, this energy artery will invariably cultivate a robust ecosystem of local governments, enterprises, and industrial interest groups heavily invested in its uninterrupted operation.

Recent data validates this trend: in 2025, Mongolia’s coal and copper concentrate exports generated $5.77 billion and $5.81 billion, respectively, totaling nearly $11.6 billion. In recent years, Ulaanbaatar has aggressively expanded its railways and border ports with the explicit goal of increasing mineral exports to China. Clearly, ensuring the frictionless operation of cross-border infrastructure is already a paramount economic imperative for Mongolia.

The natural gas pipeline will forge similar, deeply entrenched economic constraints. Halting a 50-bcm transnational corridor would not only torch Sino-Mongolian relations but also instantly vaporize transit revenues, severely strain relations with Moscow, and eviscerate Mongolia’s international credibility as a reliable partner. For a nation whose entire 2025 foreign trade totaled $27 billion—$18.7 billion of which was with China—the geopolitical and economic price of such a provocation is simply too exorbitant to entertain.

The Real Strategic Risk: An Overreliance on Russian Gas

From a macro-strategic perspective, the genuine long-term risk to China may not stem from Mongolia at all. As long as Beijing maintains a highly diversified energy portfolio, the leverage any single transit country can wield remains inherently capped. The real factor that could shift China’s strategic vulnerability is whether Russian natural gas claims an outsized share of China’s total consumption moving forward.

If the eastern route continues to scale up, the Far Eastern route comes online, and the 50-bcm “Power of Baikai” is completed, Russia’s total gas supply capacity to China could comfortably exceed 100 bcm annually. Should floods of cheap Russian pipeline gas inundate the Chinese market over the long term—gradually crowding out Central Asian gas, seaborne LNG, and higher-cost domestic production—China’s energy grid could inadvertently sleepwalk into an overdependence on a single supplier.

This perfectly encapsulates why Beijing has exercised remarkable strategic patience regarding “Power of Baikai.” While Moscow has repeatedly telegraphed that a final deal is imminent, Beijing has remained highly disciplined, meticulously negotiating price, contract durations, procurement volumes, and construction logistics. For China, absorbing an additional 50 bcm of Russian gas is an excellent way to lower import costs and optimize the northern energy grid. However, it must simultaneously preserve its “strategic redundancies”—maintaining Central Asian pipelines, LNG terminals, domestic production, and robust storage facilities, even if they come at a higher financial premium.

As long as this diversified architecture remains intact, a Mongolian transit node will never constitute a fatal strategic soft spot. China is managing a highly dynamic, interchangeable, and risk-mitigated energy ecosystem—not rolling the dice on a single, isolated pipeline to dictate its energy destiny.

The Asymmetric Interdependence of a Trilateral Pipeline

Placed within the grand geopolitical narrative of the Sino-Russian-Mongolian triangle, “Power of Baikai” represents a textbook case of structural asymmetric interdependence. Russia controls the upstream gas, Mongolia guards the transit throat, and China anchors the entire system with its massive end-user market. While all three players hold bargaining chips, the weight of those chips differs drastically in terms of substitutability, implementation costs, and strategic reach.

For Mongolia, transit rights offer direct leverage. In theory, Ulaanbaatar could exert influence through tariff hikes, regulatory red tape, or outright supply suspensions. However, tactical leverage does not equal strategic bargaining power. Mongolia’s economy is entirely wedded to Chinese mineral demand and Russian oil supplies. Unilaterally weaponizing its transit rights would not only forfeit transit revenues but invite devastating retaliation against its mineral trade and trigger a severe backlash from Moscow. Russia is equally constrained. Because of the inherent rigidity of pipeline infrastructure, once western Siberian gas is rerouted to China, Moscow cannot easily pivot to alternative buyers. A deliberate supply cut would yield nothing but a gaping revenue hole and stranded assets.

By contrast, China operates from a position of profound strength. It is the sole viable buyer for “Power of Baikai” the undisputed engine of Mongolia’s export economy, and the proud owner of a highly diversified energy matrix of domestic gas, Central Asian imports, and seaborne LNG. In this trilateral game, China—as the monopsony buyer with abundant alternatives—holds the ultimate negotiating advantage.

Ultimately, Mongolia’s geographic advantage cannot be readily cashed in for strategic dominance. As long as China rigorously defends its baseline of supply diversification, transit risks remain eminently manageable. Moving forward, the most realistic challenge will not be a dramatic, geopolitically motivated “gas shutoff,” but rather chronic, bureaucratic haggling over transit tariffs, taxation, and regulatory frameworks. Therefore, instead of indulging fears about Mongolia “closing the valve,” risk management should focus intensely on the drafting phase. By locking in rigid tariff mechanisms and severe breach-of-contract penalties through ironclad long-term agreements before ground is broken, Beijing can effectively neutralize future rent-seeking behavior and secure this vital energy artery under the strict confines of international law.

Editor: Zhao Yiwen

Direct flights will be operated between Mongolia and Azerbaijan www.open.kg

The Committee on International and Inter-Parliamentary Relations of the Parliament of Azerbaijan held a discussion on a draft law regarding the "Agreement on Air Communication between the Government of the Republic of Azerbaijan and the Government of Mongolia." This document, aimed at creating a legal framework for organizing air communication between the two states, was signed on May 6, 2026, in Leipzig, Germany.

According to the agreement, Azerbaijani air carriers will be able to operate flights from Baku, Ganja, Nakhchivan, Lankaran, Gabala, and Zagatala to Mongolian cities: Ulaanbaatar, Khovd, and Choibalsan. Similarly, Mongolian airlines will be granted the right to fly to the specified Azerbaijani cities.

Key terms and regulatory norms of the agreement:

Cooperation of airlines: The parties may designate one or more air carriers, allowing them to cooperate under code-sharing agreements and seat sharing.

Approval of schedules: Summer and winter flight programs must be submitted to the aviation authorities of the other party 45 days before the start of flights, and a decision on them will be made by the competent authority within 20 days.

Tariff policy: The agreement stipulates the establishment of ticket prices at a reasonable level, which will help protect passengers from artificially inflated prices and prevent dumping by air carriers.

Customs exemptions: Aircraft, fuel, lubricants, and spare parts for international flights will be exempt from customs duties and fees, subject to certain conditions.

The agreement will enter into force after the last written notification of the completion of all necessary domestic procedures by both parties is received.

How a U.S. aid agency and the government of Mongolia worked to avoid a water crisis for Ulaanbaatar’s residents www.hks.harvard.edu

Fatema Z. Sumar, executive director of the Harvard Center for International Development (CID) and HKS adjunct lecturer in public policy, was awarded the Friendship Medal by H.E. Khurelsukh Ukhnaa, president of Mongolia, in a ceremony at the Mongolian Embassy in Washington, D.C., on September 7. The honor recognizes Sumar’s leadership of the Millennium Challenge Corporation’s $350 million Mongolia Water Compact, which helped avert a looming water crisis in the capital, Ulaanbaatar, and expanded water access for more than two million residents. The Millennium Challenge Corporation (MCC) is an independent U.S. foreign aid agency that Congress created in 2004 to reduce global poverty. Before joining HKS, Sumar oversaw the agency’s compact operations. We spoke with her about what made the Mongolia compact unique, why water access is a critical development issue, and what it took to complete the project.

Q: What does it mean to you to be recognized by the Mongolian government for this work? 
Alongside my former MCC colleagues Jonathan Brooks and Kumar Ranganathan, I am deeply humbled to be recognized by the president of Mongolia and very proud of what both countries accomplished together. Mongolia has held a special place in my heart since I first visited in 2015 to help get the compact off the ground. Since then, I made many trips to the country (including in the dead of winter), built relationships across the Mongolian government and civil society, and saw firsthand how urgently Ulaanbaatar needed a long-term solution to its water challenges. For me, the Friendship Medal represents not only what we built, but also the ensuing trust and friendship between our countries and communities. 

This recognition is really about a much larger collective effort. More than a decade of work went into reaching this point, and so many people across Mongolia and the United States worked tirelessly to get it done. I want to especially acknowledge and congratulate the MCC Mongolia and the Millennium Challenge Account Mongolia teams on a job well done. 

Q: You served as vice president of compact operations at MCC, overseeing infrastructure and technical work. What makes the Mongolia Water Compact distinct? 
MCC’s mission is to reduce poverty through economic growth. What made the work in Mongolia truly distinct is how comprehensively it addressed water scarcity in the capital. Ulaanbaatar is home to nearly half of Mongolia’s population, so the compact took a comprehensive view, including consultations with those directly affected. The compact did not just build a new water plant. It created an integrated system that includes new groundwater wells, an advanced water purification plant, and Mongolia’s first wastewater recycling plant, alongside policy and institutional reform and workforce development.

The compact is also an example of what I like to call “development diplomacy” in practice. In addition to the technical analysis of the design of development investments, the compact required extensive diplomacy to bring all parties on board. During my time working on the compact, first from 2015 to 2018 as MCC’s deputy vice president and then again from 2021 to 2022 as MCC’s vice president, I spent considerable time with my team in both Washington, D.C., and Ulaanbaatar aligning policy priorities, timelines, and budgets, and working through numerous challenges. Complex investments like this succeed when technical and development expertise are paired with diplomacy, political support, trust, and a shared mission that can endure across changes in governments and leadership.

Q: This compact was designed to head off a water crisis as Ulaanbaatar’s population was rapidly growing. What was the compact trying to achieve?
Ulaanbaatar’s population had grown rapidly as people moved from rural areas to the capital. Many formerly nomadic families settled in the city’s sprawling ger districts, which are peri-urban communities where residents lacked reliable access to basic services, including piped water. Nearly half of Mongolia’s population and approximately three-quarters of its economic activity were concentrated in the capital, placing enormous pressure on its limited groundwater resources. When we were designing the compact, demand for water was projected to exceed supply as early as 2021.

This was not simply a water problem. It was a binding constraint on Mongolia’s economic growth and a serious threat to people’s quality of life, particularly for communities already facing limited access. The compact was designed to head off that crisis by creating a secure, sustainable water supply for residential, commercial, and industrial users. The goal was to meet the city’s needs for decades to come while creating a stronger foundation for jobs, investment, and economic growth.

Q: The compact ultimately expanded Ulaanbaatar’s water supply by nearly 80% and is expected to benefit more than 2.4 million people. What made that outcome possible?
It began with identifying the problem correctly. Using MCC’s evidence-based model, MCC and the Mongolian government conducted a joint constraints analysis to identify the binding constraints to private investment and economic growth. The analysis identified costly access to water and sanitation in productive sectors and poor communities as one of Mongolia’s greatest constraints to growth. That gave both countries a rigorous, shared understanding of the underlying problem and allowed us to design the compact around it rather than starting with a predetermined solution.

From there, the MCC and the Mongolian government jointly developed an integrated solution by expanding the city’s groundwater supply, purifying that water for municipal use, and recycling wastewater so that thermal power plants and other industrial users would no longer rely as heavily on scarce drinking water. 

Strong Mongolian ownership was also critical. The government of Mongolia contributed nearly $112 million and worked side by side with MCC throughout the compact. That commitment, combined with years of technical work, problem-solving, and trust, allowed an enormously complex program to be completed on time and on budget despite major external shocks, including the pandemic and supply chain disruptions stemming from the conflicts in Ukraine and Iran.

Q: Beyond the physical infrastructure—new groundwater wells, a purification plant, a wastewater recycling system—the compact included policy reform and workforce development. Why does that matter?
You can build a state-of-the-art plant, but if local institutions cannot operate it, finance it, regulate it, and maintain public confidence in it, the development impact will not last. Infrastructure is only sustainable when the people and institutions responsible for it have the capacity and resources to keep it working.

That is why the compact also invested in water-sector governance, utility management, financial sustainability, public awareness, and the professionals responsible for operating the new systems.

During construction, more than 8,200 jobs were created, 92% of them held by Mongolians, and 187 Mongolian engineers and technical staff received specialized training. We were not just building physical infrastructure. We were also building the human and institutional capacity needed to sustain it for decades.

Q: Are there lessons from your experience that HKS students can take away as they study how to make development projects succeed?
The first lesson (and my MPP1 students of the beta cohort in Policy Design and Delivery all know this by now) is to identify the issue correctly. Policymakers often rush toward a preferred solution before adequately defining and getting the problem right. If you get problem identification wrong, even a well-designed and well-funded intervention may solve the wrong problem and create a whole host of unintended consequences.

Second, good policy design is necessary but not sufficient. You need to understand who has the authority to act, who bears the costs, who benefits, whose voice is missing, and what incentives will keep people committed over time. That means getting out of the conference room, listening to people, consulting civil society, and building coalitions beyond the most obvious technical counterparts. Politics matters to the outcome of development. Diplomacy matters. And trust is everything.  

Finally, development takes time. Governments change, priorities shift, and problems inevitably emerge. Policymakers need technical knowledge, but they also need political savviness, humility, emotional intelligence, persistence, and the ability to build bridges across different cultures. The Mongolia compact succeeded because people in both countries stayed committed to a common purpose for more than a decade. 

As I tell my students, it is very easy for policymakers and politicians to destroy something. Building public goods that last and serve the public interest is much harder and requires extraordinary skill. That’s our collective goal here at HKS: to build for the future of humanity.

“Prime Minister must not violate the law himself” says DP caucus www.gogo.mn

The Democratic Party (DP) caucus in the Parliament discussed the draft 2027 Budget of Mongolia and announced its position on the proposed budget and the Government's actions.

Citing what it described as repeated violations of the law by the ruling party, the DP caucus called for accountability and demanded that Prime Minister N.Uchral immediately submit a motion of confidence in his Government to Parliament for consideration.

O.Tsogtgerel, Chairman of the DP caucus, said: 

“There is an established international parliamentary practice whereby, when a policy conflict arises, a motion of confidence is put forward. If confidence is affirmed, the policy proceeds; if confidence is not secured, there is no need to deliberate on the accompanying legislation. The public can see the current state of the Cabinet.”

MP G.Ochirbat said the Government was including budget figures without sufficient analysis from budget experts, researchers, or auditors. He also raised concerns over issues involving the Prime Minister and a private school, as well as a matter involving MNT 50 billion that had emerged that morning.

“Our party will demand a detailed breakdown and work with the Ministry of Education and the Ministry of Finance to establish the facts. The materials prepared by the ministries are naturally processed in Excel files. Yet when members of the Standing Committee on Petitions request this data and make it public, the response is anger, with claims that ‘they are trying to smear me using an Excel file.

The Prime Minister should not speak in such a manner. Having previously served as a member of Parliament, Speaker of Parliament, Head of the Cabinet Secretariat, and Minister of Digital Development, and now serving as Prime Minister, he has overseen the adoption of numerous budgets and laws. Yet he is now submitting a budget in violation of the law himself.

The Democratic Party maintains that, together with the public, we must put an end to such improper practices.”

EBRD marks 20th anniversary of operations in Mongolia www.ebrd.com

-EBRD marks 20 years of investment and business support activity in Mongolia
-US$ 3.2 billion of financing committed to date through 172 projects
-Bank is the largest international financial institution lender to Mongolia’s private sector

This week, the European Bank for Reconstruction and Development (EBRD) celebrates the 20th anniversary of its operations in Mongolia and the establishment of its Resident Office in Ulaanbaatar.

Over the past two decades, the EBRD has financed 172 projects worth a total of US$ 3.2 billion (€2.8 billion) in various sectors of the Bank’s most easterly investee economy. Ninety per cent of the Bank’s loans in the country have been extended to private companies, making the EBRD the largest lender to Mongolia’s private sector among the international financial institutions.

While the Bank’s cooperation with Oyu Tolgoi, the world's fourth-largest copper mine, which accounts for close to 30 per cent of national gross domestic product (GDP), remains a landmark investment, the EBRD has worked to expand its footprint outside the extractive industries and across Mongolia's private corporate sector. From automotive retail and heavy equipment to consumer goods and food security, sustainable real estate and green finance for businesses and households, the EBRD has played a key role in the development of the country's economy.

Over the years the Bank has built close relationships with a number of homegrown corporate groups, such as MCS, MSM, Tavan Bogd and Shunkhlai Holding, supporting their sustainable growth, the adoption of green technologies and inclusive employment practices. This market segment accounts for 43 per cent (US$ 570 million, or €494 million) of the Bank’s current portfolio in the country.

By working with Mongolia’s business conglomerates and smaller private-sector clients, the EBRD is not only offering much-needed working capital financing, but also stimulating innovation and the deployment of new technologies. For example, the Bank extended its first sustainability-linked loan in Mongolia to MCS Coca-Cola to fund a modern bottling line, an e-truck fleet and the achievement of recycled polyethylene terephthalate (PET) packaging targets. It supported the expansion of a convenience-store franchise model, creating hundreds of jobs (GS25), and introduced Mongolia's first FSSC 22000 food-safety certification (Ulaanbaatar Flour).

For many years the EBRD provided targeted support for the cashmere production chain (Mongolia manufactures around 40 per cent of the world's raw cashmere), spanning herder pasture management guidance, spinning capacity expansion, and a joint environmental impact assessment with leading producer Gobi and the Sustainable Fibre Alliance. Many of these projects have been supported by the EBRD’s Finance and Technology Transfer Centre for Climate Change (FINTECC) programme, which is designed to transfer technology in the area of climate change mitigation and adaptation.

Since providing its first loan to XacBank in 2006, the EBRD has significantly expanded its work with local financial institutions, which currently account for 31 per cent of its portfolio in Mongolia (US$ 411 million, or €356 million). Over 20 years, the EBRD's Mongolian banking sector activity has grown from small, single-purpose microfinance transactions into a core, multi-instrument channel for reaching the country's private small and medium-sized (SME) enterprises.

The roster of financial intermediaries includes both major lenders, such as Khan Bank, XacBank and most recently Golomt Bank, as well as microfinance institutions, such as Transcapital and VisionFund. The size of transactions has also scaled up from smaller deals of less than US$1 million (€0.8 million) decades ago to the largest EBRD-to-bank financing package in Mongolia's history (US$170 million, or €146 million, to Khan Bank).

The range of instruments has expanded from straightforward senior loans to blended concessional packages, risk-sharing guarantees, trade facilitation deals and syndicated structures that mobilise international capital alongside the EBRD's own. There are several flagship programmes in place: Women in Business, Youth in Business and the Green Economy Financing Facility. They help to convert partner banks’ balance sheets into an effective mechanism for deepening the EBRD's reach across Mongolia's small and micro business sector.

Sustainable infrastructure makes up the largest part of the EBRD’s portfolio in the country, at 26 per cent (worth US$ 337 million, or €292 million). It includes standalone projects, such as the construction of a 220 km-long transmission line and a 250-bed cardiovascular hospital in Darkhan, which will be become the first EDGE-certified (a green building certification system) facility of its type in the country. Under the EBRD Green Cities flagship programme, Ulaanbaatar's Green City Action addresses various challenges, from access to water, heating and affordable housing to the construction of another cardiovascular hospital in Ulaanbaatar.

Co-financing and technical support provided by many donors (such as the European Union (EU), the Green Climate Fund, Japan, Taipei China, the Women Entrepreneurs Finance Initiative and others) have been instrumental to the successful implementation of the Bank’s projects in Mongolia. These funds are helping to de-risk and upscale private-sector lending, reducing the cost and risk of extending finance to smaller, higher-risk borrowers.

Sustainable mining remains an important part of the Bank’s portfolio in Mongolia. The EBRD has recently provided an US$ 80 million (€69 million) working-capital loan to Oyu Tolgoi, a client since 2015. It is part of a US$ 350 million (€301 million) package co-arranged with the International Finance Corporation (alongside ANZ, HSBC, Khan Bank and XacBank) to support the mine's underground development, advanced mining technologies and sustainability programme.

Since its launch, the EBRD's Advice for Small Businesses programme has supported nearly 1,000 enterprises across Mongolia with tailored advisory projects delivered by local and international consultants. The programme has also helped almost 6,000 micro, small and medium-sized enterprises benefit from specialised business training and mentoring, while a further 15,500 have accessed a range of business development and networking opportunities.

Beyond direct support for businesses, the programme has strengthened the capacity of hundreds of local consultants, helping to build a sustainable local business advisory market in Mongolia. The programme is supported by the EU, Japan and Korea through the EBRD Small Business Impact Fund and the Women Entrepreneurs Financing Initiative.