Coal’s way

28th of 9, 2017


The restrictions recently imposed on coal trucking in China’s eastern and northeastern provinces have had a negative impact on Mongolia’s coal exports, as that region is where much of the country’s coking coal imports are consumed. This issue came up time and again at the 7th Coal Mongolia conference earlier this month during discussions on how to make Mongolian coal more competitive.

The restrictions are part of China’s bid to reduce air pollution which also seeks to stop use of low grade coal. The dust raised by coal trucking is a major source of air pollution and this is what led the Chinese Environment Protection Ministry to restrict such a way of transporting coal. The relevant orders came into force on 9 July in Tianjin, and in September in Hebei. This has slowed down Mongolia’s coal exports and if the restrictions affect more areas in China, the 70-km-long line of coal trucks at Gashuunsukhait could become much longer. This will obviously have an effect on Mongolian export revenues. Sarah Liu, Vice President of Fenwei Energy, discusses the developments in this issue of MMJ.

The reversal is yet another reminder that the only way to export coal in large volumes is to use a railway, which Mongolia still does not have. It will not be enough to build a railway, we also have to make sure that what is built is indeed the most efficient way to take our coal to the global markets. Our competitiveness will not depend on how many routes we have, but rather on how viable they are.

Attending the recent Eastern Economic Forum in Vladivostok, the Mongolian President cheerfully announced that his dream of exporting Tavan Tolgoi coal through the Russian port of Vostochny had come one step nearer reality. Unfortunately, this comes at a time when Mongolian coal is losing its competitiveness in the Chinese market where all major players are seen.

Whenever there is a rise in coal prices and  demand, the railway issue comes to the forefront, with much debate on both route and gauge. Would the export route for Tavan Tolgoi coal head north or go south? To the south is the Gashuunsukhait border port, 267 km by the proposed railway, while the northern railway would be 1,100 km. Both routes are included in the State Policy on the Railway, but there they remain, with nothing to show on the ground. There is no consensus on which one would be commercially more viable, and be of more benefit to the Mongolian economy, nor is there any decision on which route would be laid first. The result of the political impasse is that we have two potential routes and our coal is transported by truck.

The Tavan Tolgoi-Gashuunsukhait route has seen many starts and stops. However, the Government Action Plan 2016-2020 includes this and to facilitate implementation, the Erdenebat government set up a working group under the sector ministry to resolve all issues related to its construction and financing. The estimated cost of construction has jumped from $700 million in 2009 to $1.3 billion now, and is likely to be covered by a Chinese soft loan. The TT-GS railway would be imperative to keep our market share in China, if not to increase it, bringing down transport costs by 3-4 times. Our coal exporters, seeking more competitiveness, have been saying this for eight years.

The second route or the 1100-km northeastern railway was expected to cost $5.2 billion in 2015, making it a giga project, not even mega. It would certainly be higher now, tilting the balance to the southern route. But with the resignation of the government, all such decisions are in abeyance, and the President, the foremost opponent of the southern coal railway, has revived his call for the northern route. The fate of the TT-GS railway has again become uncertain, sector people fear. The President has the right to initiate laws, and if he holds a position different from that of the two other decision makers – Parliament and Government -- progress in the mining sector would stall, and big projects, which need long-term investment and a stable environment are likely to be stuck.

People who were in the President’s team to Russia are telling the public that shipping Mongolian mining products to third markets from Russian sea ports is an eminently viable project. Most in the coal sector do not agree that transporting Tavan Tolgoi coal via Vladivostok can be economically efficient. Energy Resources made a test shipping of its coal through Vostochny port in 2011, and the transport cost turned out to be $171 per tonne. Also the coal lost some of its quality because of the long ride. The company would certainly not prefer the long, northern route.

According to A.Gansukh, who was with President Battulga at the Eastern Economic Forum and who is responsible for Russia-Mongolia cooperation and the trilateral economic corridor, a decision to reopen the issue had been taken by the two countries’ Road and Transport Deputy Ministers on 29 August and the two Presidents merely confirmed this at a higher political level during the Forum. He did not give any idea of what the transit discount agreement contained, beyond saying “it is beneficial to Mongolia”, without going to any kind of specifics. We are thus left to guess what advantages would now miraculously come to shipping Tavan Tolgoi coal through Russia. What is “beneficial to Mongolia” should not be decided by politicians alone, as professional experts and mining sector people should also have a say.

There has been no real progress on the comprehensive development of Tavan Tolgoi in the eight years since the first move was made, and the delay and the indecision have meant a sharp drop in the value of the deposit. Extraction is now restricted to exclusively high-grade coal, without making and adhering to a long-term plan of proper and optimum exploitation. We can only wonder if the deposit will ever be really developed and a railway built before it is too late for either.

This year’s bright prospects for coal export are fading, and this issue reports on many aspects of the unfortunate state of affairs. Over 50 percent of the coal we export is from Tavan Tolgoi. The average transport cost from TT to GS is $28 per tonne, which is four times higher than Chinese domestic transport cost. How transport costs are the biggest threat to the competitiveness of Mongolian coal is also covered in the present issue. Among other articles are those giving information on Vostochny port, now being projected as the second doorway for Mongolian coal as it goes global, the Far East of Russia, and investments in Russia’s big coking coal projects, and their export routes.


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