Hot Topic of Coal Mongolia 2013: Transportation

By B.Khash-Erdene

The Third International Coal Investors Conference and Exhibition, Coal Mongolia 2013, opened yesterday at the SS Convention Center. Key government officials including Ministers of Mining, Economic Development, Nature and Green Development, along with domestic and foreign coal sector experts, presented speeches about Mongolia’s coal sector and its future prospects.

The Ministry of Mining and Mining.mn has organized the event with the aim of attracting international investors to Mongolia’s coal sector and to provide an opportunity for discussions on the challenges and opportunities presented by the discovery of vast mineral wealth in Mongolia, particularly coal.

The coal sector of Mongolia serves a critical role in the country’s geological and mining industry, which makes up 87.7 percent of total exports from Mongolia and one fifth of the gross domestic products (GDP). Current coal deposit estimations indicate that Mongolia has 173.3 billion tons of coal in reserve, placing Mongolia among the top coal-rich countries of the world.

“The strong resource base of the country serves as a solid basis for Mongolian coal sector’s competitive position in the international market… As the coal sector is identified as a sector with much competitive advantage internationally, the future prospects of Mongolia’s development depend heavily on the successful development of this sector” said D.Gankhuyag, the Minister of Mining.

According to statistics released by the Ministry of Mining, Mongolia produced 31.1 million tons of coal in 2012, 20.5 million tons of which were exported, contributing 828.5 billion MNT to state budget revenue.

Since their victory in the general parliamentary elections last year, the new “reform government” has been quick to reassure foreign investors that the government will be supportive of foreign investment, given the significant role of investment in the development of the Mongolian economy.

Soon after the elections, Prime Minister N.Altankhuyag pledged that the government would continue to improve transparency and strengthen the legal framework so as to create a favourable environment in which foreign investors could invest. He also emphasized that he would continue to strengthen and develop relations and cooperation with China and Russia.

A number of speakers at the Coal Mongolia conference, including CEO and Executive Director of Mongolian Mining Corporation, G.Battsengel, have been critical of the recent changes in the legal framework, stating that foreign investment into Mongolia has declined since the Strategic Entities Foreign Investment Law was passed in May last year. G.Battsengel observed that the political and legal framework of Mongolia has been in a state of constant change in recent years.

G.Battsengel noted that Mongolia lacks the value added production of coal and reliable transportation to be able to cope with the increasing demand for coal, although Mongolia is blessed with vast quantities of high quality coal. He said that Mongolia’s coal export prices tend to be relatively high, mainly due to transportation costs, which make up 70 to 80 percent of coal prices. He remarked that transportation costs are high because of inadequate roads and old railways. G.Battsengel added that if Mongolia begins processing its coal, the price could increase to 150 USD per ton. Raw coal is sold at around 90 USD per ton. According to a study conducted by his company, 850 million USD is needed to establish a processing factory.

The President of Glogex Holdings mining consultancy company, L.Naranbaatar, said in his speech that coal production in Mongolia is expected to grow dramatically in the short and mid-term. Mongolia only produced 10 million tons of coal in 2008; production had increased to 33 million by 2011.

L.Naranbaatar noted, however, that projections for 2012 coal production were 40 million tons, but Mongolia delivered 9 million less, producing only 31 million tons. The shortfall is believed to be mainly due to delays by mining companies. Glogex Holdings expects Mongolia to produce 46 million tons of coal this year, but this will depend on the reliability of transportation.

L.Naranbaatar remarked that the drops in stock prices of coal mining companies such as Aspire Mining and SouthGobi Resources over the past year were due to the political instability and uncertainty surrounding the outcome of the parliamentary elections in 2012, as well as the uncertainty surrounding the Strategic Entities Law just before the elections. He also pointed to the negative reports in the international press relating to the multiple discussions over renegotiating the Oyu Tolgoi copper and gold mine investment agreement, and the proposed changes to the Mineral Resource Law as having an impact on investors.

In response to the criticisms that ‘resource nationalist’ government policies toward foreign investment are creating an unfavourable and unprofitable investment environment, and that this is scaring away potential international investors, Mining Minister D.Gankhuyag said that the government will continue to work with the private sectors and the public to ensure that nobody’s interests are overlooked.

“Government procedures are conducted in strict accordance with the policies, and maintain transparency, even more so than businesses”, said D.Gankhuyag.

“I think the straightforward and relatively low taxation in Mongolia provides an attractive environment for business,” he added.

‘Foreign investment benefits Mongolia’s economy’

At yesterday’s Coal 2013 Conference and Exhibition, the Vice Minister for Economic Development and Ambassadors from China, Russia, Japan, the USA and Canada shared their thoughts on foreign involvement and cooperation in the Mongolian mining sector.

The Vice Minister for Economic Development, O.Chuluunbat said yesterday in his speech at the cnference that the government recognizes the importance of foreign investment in Mongolia’s economic development and that when foreign and domestic companies do well it benefits Mongolia, especially in the light of the recently released government “Chingis Bonds.”

Soon after the bonds were released, their value dropped rapidly. This followed the news that the Mongolian People’s Revolutionary Party was leaving parliament. The Vice Minister said the price of the bonds is extremely sensitive to news of such nature and said that Mongolia needs to send out positive messages to the international media by ensuring a favorable environment for investment, to increase the value of the bonds.

Vice-Minister O.Chuluunbat explained that the money raised through the bonds will be used to fund the construction of a rail project 1,800 kilometers in length, road developments, housing mortgages, and other infrastructure development projects, all of which will make it easier for businesses to conduct operations in Mongolia.

Wang Xiolong, the Ambassador of People’s Republic of China said at yesterday’s conference that Mongolia-China coal trade will continue to grow, propelled by increased economic activity in China, where GDP is set to grow by 8 percent per year, on average, in the foreseeable future.

China is the world’s biggest coal importer, followed by Japan, despite China producing around 3 billion tons domestically. The Chinese Ambassador said that China consumed 3.6 billion tons of coal last year and is planning to increase consumption dramatically as they continue to focus on the energy sector.

Last year, coal exports to China made up around 90 percent of Mongolia’s total exports, bringing in 10.2 billion USD in revenue.

Wang Xiolong explained that the biggest issues relating to coal imports from Mongolia are transportation capacity and cost. Mongolia uses Soviet style railways with wide tracks, which is different from the Chinese railways, therefore the train wheels have to be changed at the border, which is costly and time consuming.

Finally, Wang Xiolong clarified that China has never demanded or intended exclusive partnership with Mongolia.

The Russian Ambassador to Mongolia, Victor V.Samoilenko, informed the conference participants that Russia is prepared to work with Mongolia in building railways, as Mongolia is great need of reliable transportation.

He noted that no major projects have been undertaken by Russia in Mongolia since the collapse of the Soviet Union, but that Russia is willing to strengthen and continue to work with Mongolia on major projects.

Many of the large scale projects such as the Erdenet copper and molybdenum mine and concentrator plant, and coal mines such as Baganuur and Boroo Undur, were developed with the help of Russian geologists and miners.

The Russian Ambassador noted that although Mongolia has many benefits in terms of mineral wealth, it still has issues in terms of political stability, transportation, and a shortage of a skilled workforce, as well as environmental issues.

The Ambassador of Japan, Takonori Shimizu, informed the participants that Japan is interested in trading minerals and raw materials with Mongolia, as 99 percent of coal consumed in Japan is imported.

Around 80 percent of Japanese coal imports are from Indonesia and Australia. Shimizu explained that trading coal with Mongolia would be beneficial in terms of diversifying partners and reducing associated national security risks (of dependency on few suppliers), but the main issue he noted was, again, transportation and logistics. As for the quality of the coal, the Ambassador stated that lab tests of Mongolian coal showed that it meets Japanese requirements.

The Japanese Ambassador stated that the draft Mineral Resource law proposed by the President’s office contained ambiguous clauses that could indicate unfavorable terms for foreign investment.

The Ambassador of the United States of America, Piper Campbell, emphasized the need for respectful negotiation procedures and remarked that the emotional response of the public towards foreign investment raises issues. She noted that foreign and domestic investors have the same interests and the two should not be separated.

“Many of the issues that have arisen in the past and are experienced today really reflect the emotional part of the discussion, rather than any real arguments about the practical side. The solution lies in more transparency,” said Ms. Campbell.

Gregory Goldhawk, the Ambassador of Canada, noted that many Canadian companies have already made substantial investments in Mongolia’s mining development.

He emphasized the need for sensible rules that are consistently applied, as some of the laws passed are not implemented simply because it isn’t practical to do so. Mr. Goldhawk expressed that he will support the Mongolian government. He acknowledged that Mongolia has the right to pass any laws it may see fit, and said that he expects Canadian companies to comply with these laws.

Short URL: http://ubpost.mongolnews.mn/?p=2928

Posted by on Feb 21 2013. Filed under Business & Economics, Community, Онцлох мэдээлэл, Топ мэдээ. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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