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N.Algaa: Government is discussing transit railway when domestic railway issues aren’t resolved

Trans. by B.DULGUUN

Below is an interview with Executive Director of the Mongolia National Mining Association (MNMA) N.Algaa about the current Mongolian mining situations coal prices and other timely issues.

As of July 2014, mining product exports increased significantly but the price of coal, the primary export product of the mining sector, continues to drop. What’s the price of a ton of coal produced by Mongolian domestic companies?

 Companies aren’t able to sell a ton of coal for 35 USD. The media reported that coal is being supplied at 35 USD, but in reality, it’s sold for lower prices.

 A ton of coking coal is being sold for 100 USD at global markets. Is this correct?

 In the Chinese market, a ton of coking coal is barely able to reach the price of 100 USD. Generally, Mongolians refer to Chinese coal prices as the world market price. Only two places, near the Pacific and Atlantic coasts, define coal prices in the global coal market.

Specifically, countries supplying coal to Europe are mostly located around the Atlantic coast, and Japan, Korea and China focuses on the Pacific coast.

Prices are defined at ports as the main supply is conducted at these two ports. Price negotiation at the ports is considered as the international and world market standard. Mongolia will draw upon the world standard price if our coal can access the Pacific coast.

Our southern neighbor, China, is purchasing coal with consideration of the transportation costs from Mongolia to the Pacific coast. China explains that they buy coal from mining sites and borders at market prices while taking transportation costs into account. Although it’s possible, it’s wrong to compare prices of Chinese companies purchasing coal from Mongolia with prices at the Pacific coast.

Above all, Mongolia needs to be capable of transporting coal to the Pacific coast. Mongolia-China and Mongolia-Russia border coal prices were established because Mongolia couldn’t resolve logistics issues for transporting coal through China. This is defined as border price internationally.

Mongolia is a land-locked country so it doesn’t have port prices and supplies products at border prices. After improving competitiveness of coal quality, coal should be shipped to seaports.

 Aren’t Mongolian coal standard prices the same as international port prices? In the state budget, a ton of coal is valued at 120 USD, but coals aren’t supplied at adequate prices. Can you comment on this?

 Yes, actually, a resolution was issued stating that coal prices will remain consistent with contract prices until December, meaning that Chinese companies will negotiate on the prices set from Mongolia.

Both sides of the negotiators have to establish price agreements, register it at the General Customs Office, and then taxes will be imposed based on the contract. Depending on where the coal is being supplied from, whether at the mining site or border points, contract prices will differ.

If coal is supplied near the border, the price will be the same as border prices, which is 10 USD more than that of mining site prices.

It’s impossible to compare prices to world market prices as companies are selling at different prices. Taxes will be paid depending on the distance and the purchaser.

Are you indicting that even if the transit railway through China is resolved, there’s no insurance that the market will recover?

 It means that a part of the necessary environment will be consistent. Apart from the transit railway, domestic transportation is important. If Mongolia doesn’t construct a railway, we will never create a stable environment for supplying products.

Mongolia’s competitiveness will not enhance as long as railway gauge issues are unsettled. Mongolians keep on discussing transit railways when there isn’t even a railway that links the mines to the Chinese railway.

Some people are surprised that people are talking about transporting goods to China with railway despite undetermined domestic railway issues. It’s no wonder they’re surprised. Mongolia doesn’t have a railway from coal mines to border points. This is the most important issue to be debated domestically.

Currently, how many companies are mining and exporting coal and how many companies have ceased operations?

 Local companies exporting coal are Tavan Tolgoi, Erdenes Tavan Tolgoi, SouthGobi Sand, Xinhua Mak, MAK, and Energy Resource companies. Khushuut mine was included in the strategic mines’ list and their operations, as well as investment were halted for six months. Their operation may revive in the coming fall.

Ulaan Ovoo mine, located in Selenge Province, is ready to export coal. Terry Energy LLC is also ready to export coal but is observing and waiting for favorable market conditions.

Several companies led by Khunnu Coal LLC stopped mining coal and are doing explorations for other minerals. [Mongolian companies] are waiting for policies to stabilize and coal prices to rise.

Marketing strategies must be very good at places where companies trade. Partnership agreements with China on every economic level should be established in the future or we can’t deny that China will set taxes for Mongolian value-added products. If that happens, Mongolia’s competitiveness will no longer exist.

Copper exportation is rapidly increasing this year. Will this have positive effects?

 Indeed. Copper concentrate exports of Oyu Tolgoi accelerated. Erdenet company exported concentrates that exceeded volume, price and cost value. Iron ore and spar prices dropped and income centralization became insufficient.

 In the last few years, the government has been discussing standard prices for mining products. How should this standard price issue be resolved?

 The government has been talking about standard prices for the last five years. They’ve been holding meetings on standard prices on top of determining the specific amount of state revenue that will be collect per year. Other than state budget revenue, issues on how to make up the long-term taxation foundation and how to make the mining business stable in the future are connected to standard prices.

Taxation has two purposes. One is to obviously construct the state budget revenue and the other is to be used for expanding and developing businesses. This isn’t implemented in Mongolia and taxation is seen as only budget revenue.

 After establishing a Minerals Exchange, mining products are to be exported under a unified policy. Will the concept of standard price disappear then?

A unified standard policy will never function as long as there’s a standard price. If the government sets standard prices for minerals, there will not be a need for a Minerals Exchange. Only after eliminating standard prices, the government can start talking about the issue to establish a Minerals Exchange. However, Mongolia cannot hope to compete with the London Metal Exchange.

I think it’s better to create the price stabilizing mechanism through an integrated price policy, which exporters always discuss, even though it doesn’t function like an actual exchange.

Domestic companies are facing some difficulties this year as coal prices fell despite the increase in the export volume. Will the coal market recover in the future?

 It’s definite that Mongolia will cooperate with China in the mining and infrastructure sectors. China proposed a joint railway project. Many issues, including the transit transportation and changing trade tax to liberal, are being discussed. Transit railway through China is of utmost importance.

There are many issues that need to be resolved within the country to enhance coal competitiveness in the market.

Firstly, coal quality needs to be adequate. Secondly, operating costs must be inexpensive. Thirdly, an environment for constant and regular coal supply must be created. Simply, to have reliable purchasers. Only when these three conditions are ensured, Mongolian coal will be able to compete with other markets.

It’s said that Australia is Mongolia’s competitor. Actually, Mongolia’s strongest rival is China. A lot of coal companies were established in many Chinese regions such as Ordos and Inner Mongolia and started to supply their domestic needs. Multiple companies started to process and supply coal.

In other words, China started to pay a great deal of attention on developing its northern region. Some provinces of Inner Mongolia now have rights to determine taxes and fees for the coal sector.

This will have negative impact on Mongolian coal competitiveness. China’s approach is to mix good quality coals of Mongolia with their own coal to increase quality and expand businesses. This, itself, will force Mongolia to downgrade as a competitor.

 In this time of economic difficulty, how do you see the future of the mining sector?

 Companies working in the mining sector are working to keep the number of employees and overcome the economic crisis during this difficult time.

As for the state and the government, they seem to have become a hindrance, instead of help. Taxes are still very high. While other countries zeroed taxes for using mineral resources to increase mineral exports, Mongolia is doing the opposite and setting standard prices.

 

Source: http://vip76.mn/content/26443

 

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Posted by on Aug 28 2014. Filed under Prime Interview. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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