A tale of lost chances

31th of 10, 2017


The graph shows how coal export reached its peak volume in June, only to slide sharply in July, recovering but slightly in August and staying more or less the same in September. Reports so far this month do not promise much of a change.

The fall is easily traced to the situation prevailing in the Gashuunsukhait-Gantsmod border port, where 1,500 trucks laden with Mongolian coal crossed over to China on an average day. That figure has dropped to around 500 on the best of days for our exporters. The slowdown started in mid-July and lingers, with the Chinese offering no clear explanation to the helpless Mongolian miners who were looking forward to making the most of a good market.

Let us take a look at just how much they have lost in the last three months. This particular port is used by three companies -- Erdenes Tavan Tolgoi, Energy Resources and the local Tavantolgoi – that extract coal from the giant Tavan Tolgoi deposit. A look at the graph indicates that between July and September, the three companies together were robbed of the chance to export three million tonnes of coal. In early September, Energy Resources CEO G.Battsengel said at Coal Mongolia 2017 that in normal circumstances, his company would have exported 200,000-300,000 tonnes more of coal every month.

That would mean 800,000 tonnes of coal could not be exported by Erdenes Tavan Tolgoi and the local Tavantolgoi, with obviously the former by far the bigger loser.

Coking coal was 87 percent of the three companies’ exports in the first eight months of the year. Energy Resources’ average sales price in the first half of the year was $128 per tonne, while Erdenes Tavan Tolgoi’s average price now is $68 per tonne, and the local Tavantolgoi’s $70 per tonne. If we take $70/t as average, we lost over $70 million per month in the last three months. That works out to losing $2.2 million per day or more than $200 million in the three months combined. If the situation continues to be like this until the end of the year, Mongolia would be losing around $400 million at a rough estimate.  The most unfortunate thing is that this comes about at a time when the market is good for export.

$400 million is not a small amount for a weak economy that redeems $500 million of Chinggis bonds only by floating another bond. On top of that, these four months of lost opportunity were at a time when the state economy was rudderless, with the resignation of a prime minister and the scramble to form a new government. Now that a new Prime Minister has taken charge, the top priority of the government led by U.Khurelsukh is obviously tackling the loss of $2.2 million per day.  

Government-level negotiations are the only way to resolve the impasse at Gashuunsukhait-Gantsmod border port that handles more than 50 percent of Mongolia’s total coal export. There has to be a long-term agreement on coal supply, and this must be strictly implemented. Without such political support from the Chinese government, Mongolian coal is forced back from competing in the big market, and our hopes of making money by selling coal would disappear. Our second most export earning mineral, coal is projected in the 2018 state budget to bring in MNT535 billion from sales of 32 million tonnes. If work at Gashuunsukhait-Gantsmod continues to be slow, our coal export revenue will not match even that in 2016, which was a year the sector would rather forget. B.Tugsbilegt’s article in this issue is Mongolian section  shows how much hope next year’s budget is putting on the mineral sector. 
Another priority for the Khurelsukh government is making progress in the proper exploitation of the Tavan Tolgoi deposit. The matter gains extra urgency as extraction there would reach the 0 layer next year, which is where the ‘lower’ quality coal begins. The result of years of failure to deal comprehensively with the challenges and opportunities of Tavan Tolgoi will now be clear. Mining sector people and experts have been warning of this for long.  A small part of the Tavan Tolgoi deposit contains coal of very high quality and this should be mixed with coal in the other parts, so that at least one billion tonnes will be available for commercial purposes. Little attention was paid to this eminently sensible advice. The 0 layer coal can be sold only after being washed, and this realization is dawning only as we come close to dig into that layer. Indeed, if extraction is faster, we could be there even before the year ends.

The management of Erdenes Tavan Tolgoi is trying to stop the operator companies there from leaving by trying to enter into short-term agreements with them. The company cannot be faulted for letting things come to this stage. The responsibility lies squarely with those who refused to work for comprehensive development of the giant deposit, putting off decisions on building a railway and a power plant. They ignored the nation’s long-term interests in favour of short-term partisan and factional profit. A decision that will facilitate export of washed coal should have been taken long ago but is still pending. Political shortsightedness and bureaucratic intransigency have brought about the present situation.

Ukhnaa Khurelsukh must show political will and take courageous decisions to lift the mineral sector from the present state of uncertainty. The country’s 30th Prime Minister is well known for his brave and combative image, and he has the advantage of taking power when the next election is quite some time away, allowing him to adopt long-term policy and not worry about votes. He must focus on putting the Mongolian economy back on the right track, taking a comprehensive view and seeing things against a national perspective. The mineral sector is the base of our economy, and we cannot afford to have cracks in it. The firmer it is, the higher the country rises.

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