Mongolia is the next Panama

Coal Mongolia 2013 was successfully held in Ulaanbaatar last week. This is of course, an international conference and exhibition attended by the biggest coal industry players from the government and business sectors of Mongolia, as well as the world. The event lasted for two days and thoroughly examined many important issues including the competitiveness of the Mongolian coal industry, related governmental policies, the instability of our legal environment and how Mongolia can become competitive in the Chinese coal market. It also focused on what role infrastructure (especially railroad projects) can have in fulfilling this goal.

In coal businesses, the cost of transportation to deliver products to end-users takes up the biggest part of the cost. Productiveness and efficiency in this industry are highly dependent on transportation infrastructure development. Therefore, the industry can be more competitive and produce more profit only when there is more value added to coal being transported.
It can be costly to transport coking coal due to its weight and size. That is why transportation and logistics costs needed for product delivery to the final point or end-users, greatly affect the price.  For example, MMC’s (Mongolian Mining Corporation) medium-volatile, hard coking coal with an ash content of 10.5 percent was priced at USD $103-$104 a tonne at the Gants Mod border point in January, 2013.  Australian coal of the same quality however, costs USD $163-$164 per tonne in the northern region of China. The USD-$60-per-tonne difference is made up of the transportation and logistics costs needed for transporting the coal from Gants Mod to Tangshan.
China leads the world in coal imports and comes in second in coking coal imports. China imported 44.7 million tonnes of coal in 2011 and 53.6 million tonnes in 2012. Mongolia’s total coal exports exceeded 20 million tonnes in 2011 and supplied more coking coal to China than Australia did that year. Also, 36 percent of China’s total coking coal imports were supplied by Mongolia in 2012. In order to maximize the profits of our coal exports, we need to minimize the transportation costs and increase the value by coal washing.
Railroad policy

The above example shows the huge impact a good transportation policy and proper rail infrastructure can have on the economic development of our country.
Building a railroad network that will allow us to transport not only coal, but also other products including other mineral resources, has become a big development challenge for Mongolia today.
It is time for us to resolve the rail gauge issue wisely and expand our railroad network so that we can look beyond Mongolia towards regional and Eurasian markets.
A few years ago, I wrote an article and presented a proposal about how our choice of railway gauge would become the solution to many issues faced Mongolian both politically and economically.  If Mongolia manages to build a mixed-gauge railway, our country could become a new and  historical “canal” similar to the canals of Suez (opened in 1869) and Panama (opened in 1914) in terms of its role and significance to world trade.
In this article titled “Eighty five,” published in my weekly column in “Unuudur” Newspaper (2009.12.09),  I wrote that Russian and Chinese trains could come into and go out of Mongolia without having the need to change their wheels:!/eighty-five
During the Coal Mongolia 2013 conference, I came to understand and strongly believe that the timing and conditions are already present here in Mongolia which could enable our country to become the “Panama” of Eurasian transit trade. For the first time in our history, Mongolia is looking at an opportunity to freely choose which railway gauge to use when expanding our railroad network and whether to expand the railroad to Russia or build mixed networks that are connected with the Chinese railway.
This is such a golden opportunity. By making use of a mere difference of 85 millimeters, we can turn Mongolia into a big player in terms of international trade. We can also at the same time, become a strategically important point governing the third most important transit trade route in the world.
Our northern neighbor is a leading resource-rich country. Russia has one fifth of the total oil reserves on our planet. It contains 16 percent of all coal and 40 percent of all natural gas. The majority of Russia’s coal reserves (i.e. Kuznetsk, Minusinsk, Irkutsk and the Chit basins) are all mostly located around the Mongolian-Russian border.
Our southern neighbor is the most populous country in the world. China’s continuing economic growth will require great amounts of natural resources and raw materials. Railway gauges connecting this huge demand with supply, cannot be linked together because the width of these gauges differs by 85 millimeters.  It is clear however, that our neighbors will never accept different railway standards to deal with this variation in gauge width. This would lead to a very expensive task for them – building ports designated for transferring freight from train to train at every point in which their railroads meet.
Golden opportunity

Sandwiched between these two nations with vast territories, there is a country that can fit into a 2400×1260 km rectangle. Unfortunately, this country fails to recognize the golden opportunity created by history. It sees the future by election terms rather than looking forward into the future. It divides itself into groups and political parties despite having a small population – less than three million. This country is losing precious time by just sitting back and doing nothing.
We need to build a “Ж” shaped railroad transportation network with mixed gauges in order to allow Russian and Chinese trains to enter and exit Mongolia without changing train wheels. This means we should build a horizontal axis railroad which will be owned by Mongolia alone. This can be done by putting four rails on one sleeper allowing trains go on the same railway without changing gauges. This kind of mixed railway links the cities of Haparanda and Tornio and was built over a two-kilometer bridge on the Swedish-Finnish border. It’s been effectively used for many years.
When building this railroad network, we should construct all railway lines from the north with wide gauges and those from the south with narrow gauges. In the first stage, mixed-gauge railways should be built on the Tavantolgoi-Sainshand line, then Sainshand-Choibalsan, and from Tavantolgoi to the west. Furthermore, if we manage to build numerous stations where freight will be trans-shipped, logistics will be more efficient, resulting in higher profits. The west end of this railroad network will eventually become Russia’s gateway to India through Mongolia and China. This idea must be taken into consideration before signing any general agreement with Russia and China.
By recognizing that a small difference in railway gauges can make a huge difference to the development of Mongolia, we need to spend our time wisely and mobilize our resources right from the start. If we succeed in seizing this historical opportunity, we can leave something invaluable to our future generations without rushing to dig out our natural resources.
If we build a safe, fast and cheap international trade transit route, Mongolia will naturally prosper from its fees without having to pay a single penny. Then we will be able to mine our mineral resources for our own needs and process and sell them for maximized profits. The time would eventually come where our neighbors are dependent on us, not the other way around. We would also then be able to seize the opportunity to find the balance between the interests of our two neighboring nations.
Whether Mongolia becomes the next Panama or not depends only on our will and desire.

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February 27, 2013

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