April 2014
The time has come when the competitiveness of Mongolian coal in the global export market will directly depend on what the Ministry of Road and Transport chooses to do.
During the visit of Prime Minister N.Altankhuyag to the People’s Republic of China in 2013, agreement was reached on how much coal China will buy from Mongolia, and the two neighbours also agreed to collaborate in developing transport infrastructure and upgrading facilities at border ports to raise their handling capacity.
These agreements were reached in principle and now the stage is set for formalising them. The formal documents the Mongolian Minister for Road and Transport and the Foreign Minister will sign jointly with their Chinese counterparts will cover
• Transit transport facilities for Mongolian trade items through China
• Railway connection between the two countries
• Connectivity between border ports.
As I write this, few details are known about the terms these agreements are likely to contain. Officials at both the Ministry of Road and Transport and Mongolian Railway, which is under the Ministry, are not sharing any information with the media on building the railway that will carry coal from Mongolia’s bigger deposits across the southern border.
Following up on the Prime Minister’s talks in China, the Shenhua group there and three Mongolian companies – Erdenes TavanTolgoi, Energy Resources, and TavanTolgoi JSC –have come together to form the Gashuunsukhait Railway consortium. It has a limited goal, to build a “port railway” 14-15 km long, connecting the border station with the Chinese railway system. The funds will come from the companies’ own resources and/or bank loans. The main project to reduce coal transport costs, the 264-km railway between TavanTolgoi and Gashuunsukhait border port, won’t be built until the end of 2015.
According to an agreement between Mongolia and China reached in 1956, the two countries, which use different gauges for their railways, can lay their own tracks into each other’s border ports. Accordingly, the Chinese narrow-gauge track comes approximately 8 km into Mongolian territory to reach Zamyn-Uud. Now, if the 14-15-km railway links Mongolia’s Gashuunsukhait border port and the Chinese Gantsmod port, followed by implementation of the three impending agreements, major transport challenges to our exports will have been dealt with.
We have to remember that this short railway is actually the tail end of the Iron Snake, and is akin to a desperate ploy to get things moving somehow. Our actual export lifeline is the proposed railway from TavanTolgoi to Gashuunsukhait, but the Ministry of Road and Transport stubbornly refuses to see it as a priority. It was only at the Prime Minister’s initiative, ably supported by the Minister of the Cabinet Office, Ch. Saikhanbileg, that the port railway project is now ready to take off.
Only after the terms of the three agreements are made public shall we know for certain how much Mongolian coal will Shenhua’s railway transport to BaoTou’s steel plants, and also how much coal of what type will end up at Chinese sea ports, and what the transport cost would be for the use of what type of wagons. We shall also be free to sell to other buyers in China, besides BaoTou. Negotiations on the agreements will be held at different levels – Ministerial, railway authorities, and officials at the respective National Dispatching Centre – and only then shall we have a clear idea of Mongolian coal’s competitiveness. Will TavanTolgoi’s coal prove to be the expected national treasure or will it be just ash?
The immediate problem for the consortium that will build the port railway is finding the capital for the project. If construction starts in May, the railway should be operational by October. Even though it is the tail end of the Iron Snake, any reduction in transport costs is a boon for our coal exporters. That is why the three major producers in the consortium have such high expectations from Gashuunsukhait Railway.
Our Tavan Tolgoi coal cannot prove its worth until the Ministry of Road and Transport sees sense. It must divert its focus from the projected $5.2-billion, 1100-km track to the north-east and take up without delay work on the much shorter and much less expensive, but of enormously more practical and immediate benefit, railway from TavanTolgoi to the southern border. Until that happens, we can only wonder how the Ministry of Road and Transport, which is just a part of the government, keeps seeing itself as bigger than the whole.
The part of the map shown in pink represents Sector B of the Small Gobi Special Protected Area. The outlying areas form the Restricted Zone and at the centre is the Protected Area. It is the State’s responsibility to ensure that this core area, or ‘maiden zone’, is left untouched by any human activity.
It is clear that the Gashuunsukhait-Gantsmod port railroad or the track bed, represented by the dotted line, does not pass through the maiden zone at any point of its 14-15 km length. The other line shows the route of the railway which will be built by MTZ.
The bed plan was prepared by China’s Third Institute for Design, which had worked in a similar capacity for the 360-km railroad from Bugat (Bao Tou) plant to Gantsmod port. Since work on this railway is complete, we have to plan and lay our coal export railway track so that it meets the Shenhua railway at a given point. An advantage is that much of the construction equipment used by Shenhua continues to lie close to the border, and the two governments have already held discussions on a suggestion that work on the port railway can be expedited by using these.
The railway route prepared by Energy Resources (ER) in 2009-2010 began from the western side of the current railway and that, too, avoided all parts of the Small Gobi Special Protected Area. However, there has been no work on this or any other railway in Mongolia for the past six years. In the meantime, the Chinese have turned the minor border port of Gantsmod into a big city, with the Shenhua railway extending its horizons.
At the moment, the two governments are discussing various issues related to upgrading Gashuunsukhait into a full-fledged international port. One decision already taken relates to the 20 yuan the local Chinese local government charged for every ton of washed coal from Mongolia. The practice has been discontinued from April 1.