UBTZ hopes to benefit from planned new railways

25th of 10, 2018

E.Odjargal talks to I.V.Milostnykh, First Deputy Director, Ulaanbaatar Railway (UBTZ), about the status of its upgrading work and other issues. 

Where does the upgrading programme stand currently?
The programme will be implemented in three stages ending in 2030, but it hasn’t yet been approved at the management level. The plans for first stage, to be finished by 2020, has received support from UBTZ’s General Committee, and I’ll talk about this. 

We shall start with the purchase of shunting and freight locomotives, and upgrade eight stations, including Sukhbaatar, and extend the tracks at 16 other stations. The most important work in this phase will be introduction of a system that regulates train traffic to increase capacity. We are currently working on arranging the financing, and should soon be applying for a bank loan. One constraint we face is that we cannot augment our revenue by raising passenger and cargo tariff. There is no money to make improvements. All our plans get delayed but still some work has been taken up. 

What is the estimated budget for the 2030 Programme? How will the financing be raised?
I can’t give you exact figures as final estimates are still being prepared. The first stage I was talking about would require $263 million, more than half of it to come from UBTZ’s own resources.  We expect the remaining amount to come from foreign investment, and are studying the conditions imposed by various international banks and financial institutions for grant of loans. 

What are your major problems now? 
The first of these is improvement of infrastructure. The tracks need to be upgraded to ensure  safety. Both the capacity and quality of rolling stocks have to be raised to meet the growing demands of freight transport. UBTZ can’t be developed without building new stations, new cross points and tracks. The costs of our normal operation are increasing, with the price of petroleum and almost all types of constuction material, including metals and cushioned wood, going up. Some mines have increased their coal price this year, which adds to the running cost. Even then we cannot increase our tariffs and so our revenue remains static as expenses rise. This is an unfair situation. The Government should at least allow us to adjust the tariffs to the inflation rate.  
Social issues that need attention include proper medical services, kindergartens, housing, old age care etc. We also need updated training facilities for railway staff. 

Will UBTZ have a role in the construction of new mining railways? Will Russian companies hold shares in the newly created railways? 
I cannot answer on behalf of the Russian companies, except to say that Russia is interested in the development of Mongolia’s railway network, but it won’t be appropriate for me to tell you where they would prefer to be involved. However, I can reveal that Ulaanbaatar Railway is very interested in the construction of the Zuunbayan-Khangi and the Tavantolgoi-Zuunbayan railways, because of their revenue generating potential. If an offer comes and of course, if our General Committee agrees, UBTZ is ready to participate in these two projects. 

What economic benefits do you expect these two railways to offer?
First of all, this will allow UBTZ and all other freight forwarders to distribute their load. The railway on the Chinese side, which connects to the Ereen-Zamyn-Uud port, currently does not receive freight we have carried. Such bottlenecks are worse this year and the past two months have been very difficult for our freight service. We had had no reason to restrict loading of freight from Russia but the Chinese did not receive transit cargo and at times around 100 trains stood on the tracks, loaded with bulk freight like coal and iron ore. We would prefer to carry our own freight to China.   

When the Khangi-Zuunbayan railway is built, bulk freight from our own mines, including coal and iron ore, can be transported through two border points, not one as now. Transit freight would pass through the main gate. The Chinese are now ready to handle freight at Khangi-Mandal, as a railway ending at their side of the border has been built.

The Tavantolgoi-Zuunbayan railway will certainly make it possible to send much more coal across the border. Thus, both railways hold significant economic importance.

What was the problem at Ereen-Zamyn-Uud?
I was there to see things for myself. The Chinese cannot receive any more freight, transit or of Mongolian origin, as there is no vacant space in their container park. The UBTZ line to Ereen is wide gauge so the freight has to be unloaded and then reloaded to move on the narrow gauge used in China. This causes the delay and backlog. 
Another reason for the delay was that structural changes were made in Chinese border soldiers’ and customs organizations in April and May, leading to some disruption of work and the effects have continued. 

In any case, Ereen does not have enough capacity. At every meeting we urge the Chinese to expand. They have a blueprint for this but nothing happens on the ground. On the part of Mongolia, however, facilities at Zamyn-Uud port are being expanded. With money from the government, Mongolian Railway has built three terminals for freight containers, easing and speeding up work on transferring cargo.  

Has UBTZ made any moves on the new railway projects?
Yes. Our head, R.Jigjidnyamaa, has formally conveyed our proposals on the Khangi-Zuunbayan railway to the government. We are in talks with our partner, Bold Tumur Yuruu Gol Co. on financial investment, and have had preliminary meetings with entities that can prepare rail maps for the project. I have high hopes of early and quick progress. 

How does UBTZ look at the planned Erdenet- Ovoot railway?
UBTZ will have no direct engagement in its construction but we see real benefits for us from the project. When the railway is ready, a huge amount of additional freight will be required to be carried by UBTZ. If the railway is connected with our Erdenet station, we will raise the transfer capacity of our Erdenet-Darkhan section from its present 8 trains per day. This is there in Upgrading 2030 Programme. It is important to build the Erdenet-Ovoot railway, for when it is ready, Mongolian coal will be able to travel to export points on both the Russian and the Chinese borders.  

Will you be finished with your relevant expansion and upgrading work by the time the Erdenet-Ovoot railway is commissioned?
We have made an agreement with Aspire Mining, under which Aspire would be responsible for expansion of our Erdenet-Darkhan section. As for the other work, the project is being delayed, and by the time actual work starts, we should also have made some progress on our own. 

The transit transport agreement between Mongolia and Russia was signed in June but no use has yet been made of it. What is holding things up?
Any Mongolian company will get a 66.4 percent discount if it transports coal through Russian territory on Russian Railways. UBTZ is ready to offer some discount to Mongolian coal exporters if they use our line in Mongolia. 

How much?
Private entities using certain routes will pay at least 15-20 percent less.  

How would the new rates compare with what has to paid now?
Under the discount, transport from Erdenet to Russia’s Nakhodka-Vostochny would cost  $30/t in place of the approximately $100/t now – a very big savings. This is, of course, a rough calculation. Apart from $30, UBTZ will charge something like $4/t from Erdenet to the Russian border.
Are these rates competitive with transport costs through China?
We must not forget one thing in these calculations. All Russian trains are owned by private entities, and their charges are not included in the tariff offered by Russian Railways. The Russian government cannot force any price on these private entities. Our offer of discount comes after considering this. Overall transport costs through Russia would be cheaper than through Chinese territory, but the Russian route is certainly longer and will take more time.

The Russian and Kazakhstan governments could not reach a similar agreement as, it is believed, Russia thought allowing Kazakhstan to export coal through its Far Eastern ports would be bad for its own coal sector. Is there any such risk about Mongolian coal?
At the moment, even Russia has some problems exporting coal through its Far Eastern ports. Its agreement with Mongolia has to be understood as evidence of good bilateral relations. There was never any prohibition on transporting Mongolian coal through Russian territory. 

How about the prospects of Russia exporting its products, especially coal, to China using the northern railway corridor in Mongolia?
Why not, if it is profitable for Mongolia, by getting more custom for UBTZ? No thorough study has been made of transit transport through the northern corridor, and in any case, it will be a political decision for Mongolia. 

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