As this is only an MOU and not an official order, I suspect there is much more to this story than we know today. I too wonder how the 330-800neo is an effective replacement for the 350.
Airbus probably said, confidentially, we aren't going to build the plane you want - we'll make you a sweet deal to convert your order. So pick your poison, would you like:
1) A plane that isn't going to get built.
2) A plane far to large for your market and more expensive
3) A plane you are already familiar with - that has a bit more range - and saves 15% in fuel. And, I'd convert your order now, because we think there will be a lot of demand for this plane, get in line while you can.
I suspect door #3 was the best option available. You don't take the A330neo, what other option do you have?