The UB Post-Leading English News

Largest untapped high grade coking coal mine, that has 6.4 billion metric tons of estimated coal reserve in Omnogobi province, has drawn attention of world giants from U.S., Australia, South Korea, Russia, China, Japan, India, and China. So far, seven bidders are reportedly short listed.

Draft investment agreement has already been submitted to the Parliament for discussion, and Prime Minister S.Batbold has addressed to the Parliament last Friday about the principal concepts of the project. The parliament is likely to approve the principal package of documents before its end of Parliament session, or before Naadam holiday, for the government to resume negotiations with interested parties.

According to the government, the Tavan Tolgoi mine will remain under 100 percent control of its license-holder Erdenes MGL, a state owned corporation, and it will invite foreign and Mongolian companies to cooperate in investment, production at mine, and development of infrastructures necessary for the mine. The draft trilateral agreement has 19 articles, and 144 clauses. The government will sign the agreement with Erdenes MGL and investor side of the project.

Hot discussions at the Parliament largely centered around the government-submitted railway policy document: a broad gauge rail line to be drawn from Tavan Tolgoi to Sainshand, a first phase of the largest infrastructure project that connects major strategically important mineral deposits in the Gobi region to main trans-Mongolian rail line, with further advancement to the province of Dornod, Mongolia’s uranium district in the east reaching North East Asian rail corridor. Sainshand is expected to be turned into a major hub for mineral processing industry as the government aims to produce value added products in Mongolia rather than exporting raw materials abroad.

Bears in the North
One of the likely winners of the Tavan Tolgoi project is Russian Railway, a state owned railway company of Mongolia’s northern neighbor-Russian Federation.
Russian Railway currently holds decision making or 51 percent of Mongolia’s Ulaanbaatar Railway since inception of Soviet-Mongolia 1949 agreement, and it lately became active in recent years by committing its willingness to cooperate with Mongolian partners to solve its domestic problems.

Frequencies of high level visits from Russian side have lately more shortened and regularized as Prime Minister Vladimir Putin and President Dmitry Medvedev visited Ulaanbaatar, both visits formally dealt around comprehensive strategic partnership in the field of mineral resource developments coal and uranium.
According to press speculation, Russian Railway may offer highest amount of advanced payment of resource tax to the Government of Mongolia, one of main requirements of the government in the selection of Tavan Tolgoi winner.

The amount may outnumber one billion US dollars as well as solution to Mongolia’s railway development projects-Russian standard of broad gauge track (1520 mm). In 2009, Russian Railway signed a memorandum of understanding with the Mongolian Ministry of Roads, Transportation, Construction and Urban Development on launching the project to build a rail line in the southern region especially for Tavan Tolgoi project. Total cost of the railway construction is estimated at US$250 million
Specifically for this purpose, a limited liability company “Infrastructure Development” has already been set up. Russian Railway holds a 50 percent stake, while Mongolia’s Erdenes MGL and Railway Authority hold 25 percent each.

Last March, Russian Railway’s First Vice President Vadim Morozov was unanimously elected to CEO of Ulaanbaatar Railway. Two countries are now in active talks to increase the authorized capital of Ulaanbaatar Railway by the above US$250 million, US$125 million of which would be solely provided by Russian side, while Mongolia’s equity of remaining US$125 million would be opted as soft loan. Procedures of re-capitalization and modernization of Ulaanbaatar Railway has recently talked by Mongolia’s Ambassador to Moscow D.Idevkhten in a meeting with Russian Railway’s President Vladimir Yakunin.

Dragons in the South
Shenhua Energy is another likely party to win, the largest coal mining state-owned corporation of Mongolia’s southern neighbor-China.

Shenhua Energy is the second largest mining giant in the world, just after the Peabody Energy in the United States.

For the winner position of the massive project, top two giants in the world, Shenhua Energy and Peabody Energy, have joined their force as a consortium, and are actively engaged in negotiations with the Government of Mongolia.

Government of China, largest trading partner of Mongolia and biggest source of investment, believe they have the greatest competitive advantage over the others as the project’s buyer of coal would be China only. For this sense, a narrow gauge rail track (1,435 mm) is another side of the hot discussion on railway development policy of Mongolia. Geographical proximity to Chinese border, Shenhua has already started building a railway to Mongolian border to transport coking coal from Tavan Tolgoi. That railway may be completed and put into operation in 2011.
Private Mongolian businesses have already offered the Government to build narrow gauge track on their own resources from Tavan Tolgoi to the nearest Chinese border. However the government is likely to back broad gauge rail track proposal, but it may not prohibit narrow track to be built at private funding.

Recent visits by Chinese government have mostly centered around mineral cooperation under good-neighborliness and mutual trust relation.
Chinese Premier Wen Jiabao expressed China’s willingness to boost cooperation with Mongolia in energy and mining during his recent Ulaanbaatar visit. Two countries may soon ink Free Trade Agreement as feasibility study would be launched at an early date.

Expressing Mongolia’s position to mineral cooperation with China, Prime Minister S.Batbold said in a meeting with Wen Jiabao that Mongolia highly values its relations with China and supports Chinese enterprises to expand investments in Mongolia and participate in the country’s infrastructure construction and the development of mineral and energy resources.