December 2009
The Government has approved the list of 26 large-scale projects to be implemented on a priority basis that was published in the previous issue of the MMJ. These projects will define Mongolia’s growth in the near future. Their focus is on four aspects of development, but the immediate priority is improving infrastructure, particularly building new railway routes, so that mining products can be easily and more quickly transported to markets. Energy Resources has obtained a licence to build the Ukhaa Khudag-Gashuun Sukhait railroad, one among the projects on the list. Its CEO, G.Battsengel, speaks to L.Bolormaa about the new railway, and also about the company’s refinery project.
The extensive debate in the Standing Committee on the Economy revealed sharp differences among MPs on some issues related to the proposed railway. What was at stake?
Yes, many different of view points of view were expressed during the debate in the standing committee on all the 26 projects, including the Ukhaa Khudag-Gashuun Sukhait railroad. I must tell you the background first. We signed the contract with the Railway Administration in June 2008 to build the railroad after the Government had agreed to it. Now we are ready to start work on the project.
As required by the Government resolution our company announced an international tender in June 2008 and then asked the winner, the Railways Corporation of Germany, to do a project feasibility study. More than 20 engineers form Germany came for this and made a comprehensive study on site. Drilling and geo-technical surveys were done along the proposed route. The study was completed in March 2009. And finally, as you know, during the visit of the then Prime Minister, S,Bayar, to Germany, a formal agreement was signedbetween the two companies. So now we’ve got a very reliable partner in the construction of the railroad.
Our next job was to choose the contractor for the construction work and suppliers. The project is worth more than USD 700 million. The first has been done, and we have chosen Australia’s Leighton Asia for the basic construction of the railroad. The contract will be signed and construction begin before the end of this year. As you can see, in the course of less than one year we’ve accomplished a lot. We are also confident that the construction work will be finished in a short period.
The recent economic crisis hit construction and road companies hard, and we want to help them by engaging domestic companies as much as possible as subcontractors. This is how Energy Resources plans to contribute to our country’s development. Our example shows that successful implementation of all 26 projects will have a tangible impact on the economy of Mongolia, helping it grow fast.
As for us, more than 300 domestic contactors and suppliers are working onprojects run by Energy Resources. It will be the same with the railroad project. This is how the economy is kept on the move, with every project generating some income for a large number of people. All this will support other sectors and raise consumer demand, and consequently the economy will grow.
Mongolia’s economy has been moving in the last 20 years towards the free market, and the private sector has become the largest contributor to the GDP, its share standing at more than 80%. However, most of this comes from the service sector, and the capacity of our small market of 3 million people will be exhausted soon. We have to look towards the mining sector to stimulate our economic growth, and to give the opportunity to various domestic companies to raise their level of competence to international standards. A country’s prosperity is usually driven by a few large national corporations, such as Daewoo and Hyundai in Korea, Mitsubishi in Japan and Siemens in Germany and we also hope for similar branding.
But we have to remember that mining projects in general, and infrastructure development in particular, require huge investments. According to a World Bank study, the minimum short-term investment demand for infrastructure development projects in the South Gobi alone is USD 5 billion. The Government cannot afford this and I guess everyone has understood that only the private sector can raisesuch funds from the international financial markets, and then manage large projects and implement them in a short time.
Is it true that China’s Shenhua group has invested in the railroad project?
I will be straightforward. Everyone knows that Shenhua is among the companies in the race for the Tavan Tolgoi coal deposit. Shenhua has the licence to buildthe railroad on the Chinese side to the border port of Gants Mod and has already started work. On our side of the border, we are working on the railroad with the Australian subcontractor Leighton Asia. The funding has been negotiated with the ADB, the EBRD and similar internationally recognized financial institutions. Recently the ADB deputy chief visited Mongolia and expressed his bank’s support for the railroad project. With such arrangements in place we won’t need any investment from a foreign company.
Will only raw coal from the mines be transported by the railway? Do you have any plans for value added production?
In April this year we started mining and exporting coal, but our area of work is not limited to coal mining. We have begun work on a coal refinery in cooperation with Seigmen Company of Australia. Construction has progressed well and we are committed to finishing the project by the end of this year. Once the refinery is operative we shall be able to export Mongolia’s mineral resources with quality value added. Half of the world’s 250-million-ton coking coal demand is met by Australia. We hope to have a product that is comparable in quality to theirs andwill also be competitive in the international market.
What will be the capacity of the refinery?
Our coal mining target for this year is 1.8 million tons, but by the time the refinery is opened we hope to raise it to5 million tons. That would be the capacity of the refinery.
There is talk that Energy Resources will the exclusive user of the railway once it is completed. Is this likely?
Our contract with the Railways Administration is clear that there will not be any discrimination against any party which wishes to transport goods on the railroad. The Railways Law of Mongolia also does not allow this. We have no plans to use this railroad solely for transportation of coal from Ukhaa Khudag. We see it as agateway for export of all kinds of minerals and mining products, including copper, gold and other minerals from deposits such as Tavan Tolgoi, Baruun Naran and many others yet to be explored. Energy Resources is investing in the project and taking all related risks and investment, but not to treat it as personal property. We expect the railroad to have a great impact on the development of the region. We also feel that with more mining projects implemented the more money will accrue to the state budget as taxes and royalties. This is how we see the importance of our project.
The local community and administration must be eagerly awaiting a quick solution of the region’s infrastructure needs, including the railroad in particular…
The most pressing issue for the local population is finding jobs. Energy Resources has provided more than 800 jobs to the local people since the project was launched. Almost everyone in the Tsogttsetsii soum is now gainfully employed. Along with better living conditions has come a brighter faith in the future. Many of our employees have also been able to upgrade their skills, and have moved upfrom being service and support personnel to more qualified jobs with higher salaries. More than 40% of our total staff strength is local. With the commencement of the railway construction another 1,500-2,000 jobs will be created. And when the railway is operational there will be 500 permanent work places.
In December 2008, long before the mining started, we introduced our project to the local community and worked closely with them. Last August we organized an Open Door event and presented to the people of Khanbogd, Bayan Ovoo, Tsogttsetsii and Dalanzadgad what we have accomplished in less than a year. We prefer to act instead of talking and have received full support from the local community.
People who visit our mines are impressed by the fact that Mongolians have accomplished something so big by themselves. One of our latest initiatives is the conclusion of a cooperation agreement in the field of human resource development with the Mongolian University for Science and Technology. As part of the agreement we organized 2-3 days’ study tours at our mines for 15 teachers of the university. They were very appreciative that Mongolians have built and are managing world class mines. We are gratified and encouraged by this recognition and are looking to a successful completion of our project.