June 2011
At the beginning of the year Finance Minister S.Bayartsogt declared that 2011 will be the greatest year for construction and infrastructure in Mongolia. And so it appeared it would be, with plans and programs made in February, schedules finalised in March, and the real work beginning in April, picking up speed every passing week until everything would take the winter break in November.
But it did not go according to plan or expectation. On April 22 the gravel road in the South Gobi used to carry coal to China was closed. A few days later began the diesel shortage following export restrictions by Russia, and this is likely to continue until July. Engines had to be turned off just as they were getting into the act. Mining operations were the biggest casualty, with construction, transport and agriculture also badly affected.
Mongolia uses 1 million tons of petroleum products annually, with diesel making up 50-60 per cent of it. Some 30 per cent of the total expenses of mining companies are on petrol and the rise in its price is a blow, all the more so because no one expected Putin to turn off the faucet just when it would hurt us the most.
At the end of March, coal contributed 27 per cent of the total export and was well on the way to double last year’s record sales volume. Within a month, the coal road had been shut down and petrol supply had been restricted. The force majeure not only hits mining but pulls down the total Mongolian economy. This year’s economic growth projection of 9 per cent will now be impossible to achieve.
What is akin to bolts from the blue struck when foreign direct investment was rising rapidly and the country’s financial capacity was getting stronger. As we write this, there are hopes that the Mongolian President has been able to persuade Russia to resume some of the halted supply.
The other worry is the Chinese decision to import less copper, which has led to a sharp drop in Mongolian income from copper export. In March, 2010 copper revenue was 50 per cent of our export earning but in the same period this year, it was just 15 per cent. Mongolian growth remains hostage to developments abroad over which we have no control, it seems.