The joint company to build the Trans-Mongolian horizontal axis will be called the Joint Venture

The new agency called “The Railway Authority“ is planning to construct , in a cooperation with a Russian company, a new railway that will pass east-west the wide steppes of Mongolia. The coking coal of Tavan Tolgoi as well as the riches of other deposits of South Gobi will travel on this railway to Russia and other North-East Asian countries. Therefore, there is a large interest to this new railway internationally. The preliminary estimates show that 2 billion USD are needed to construct this 920 km long road. The existing Trans-Mongolian railway is 1,000 km long and joins Russia and China. Thus, a construction project is about to start in the east-west direction of Mongolia.

What will be the name of the new company that will be established in cooperation with the Russian open shareholding company “Russian Railways“? What will be the structures, rights and objectives?

The name has not been assigned yet.  So far we call it “Sovmestnoe predpriyatie” in Russian and “Joint Venture“ in English. We are currently negotiating to have a 50:50 stake from the Mongolian government (i.e. the Ministry of Roads, transportation and urban development) and from the open shareholding company “Russian Railways“.  The objective of the company is the construction and utilization of a new railway and upgrading of the existing “Ulaanbaatar railway“ company.
Along the first objective, we will look into raising the finances and constructing the infrastructure necessary for the development of Tavan Tolgoi. Also we have the obligation to renovate the outdated equipment, locomotives and the worn out roads that belong to the 60 years-old “Ulaanbaatar Railway“ company (UBTZ). To do this, we need to raise a lot of funds. There are many objectives that are outlined in the agreement such as using the technical capabilities of the mighty “Russian Railways“ company and learning its technology of road repairs.
The new company has to raise the funds necessary to build the railway from Tavan Tolgoi to Zuunbayan. It will be difficult for the Mongolian side that owns the 50% of the JV, to raise all the funds. It is thought that Erdenes MGL should be a partner from the Mongolian side.

The records of the cabinet meeting from April, 13th indicate that this new state-owned company will be participating in the future mining projects through its daughter company only. Could you explain this? Will this company have a new daughter company?

I explained earlier that the new company will have two main objectives. It can participate in the transportation of the mining products by connecting to the main railway. In other words, it can purchase the products through the daughter company and export it via railway. The daughter company will become a sort of a trading company.

It also indicates that the sides will come up with the initial funds of USD 1.8 mln. to start the company. Will the money come from the budget? Or are there other options such as paying by the future mining revenues or products?

The start-up capital is likely to come from the state budget. There is no need to use the future payments from mining. However, it may be right to use the future mining products as guarantee for financing the construction of the railway. There may be options of selling the future quotas of mining products in exchange for the current investment.

Will Russia have a priority right to participate in mining projects through the creation of the Mongolian-Russian railway JV?

Through the cooperation in the railway company, Russians may have the intention to have future opportunities in mining. They may express the wish to have a priority right because they own the 50% stake in the railway that will be transporting the mining products. However, the position of the Mongolian side is, together with Russians, to export the products to the world market. It will be limited to think that one will construct this railway and transport it only to the Far East.

Will Mongolia negotiate and sign the transit agreement with the two neighbor countries before developing the strategic deposits?

The Alma Aty convention clearly states what responsibilities the countries with the access to the sea have with respect to the land-locked countries. We will see how the two neighbors will fulfill their responsibilities.

It is understood that the private sector will be participating in the railway transport for the first time. Do we need a new legislation that will regulate this?

The railway safety law was passed in 2003. This law was amended and passed as the Law on Railway transport in 2007. This new law has opened the possibilities for the private sector to construct, maintain and use the railways. Currently, there are joint decisions to raise funds in public-private partnerships. The current options are that investor operates the rail and transfers them to the state after 10, 20 or 30 years. During this period, the investor will use the railways to pay back for their investment and then will transfer the 51% to the state. By acquiring the railway back, the state wants to regulate the use of the railways for the public transport.

How should the route of the new Trans-Mongolian railway be coordinated with the railways that will be built for the development of the new strategic deposits?

Of course it is logical to connect the Oyu Tolgoi and Tavan Tolgoi with the Trans-Mongolian route. The currently planned route from Tavan Tolgoi to Zuunbayan will be connected to the main railway. The initial capacity will be to transport 5, 10 million tons of freight. When the larger capacity will be needed, the transportation can use the route to Choibalsan. Thus the horizontal Trans-Mongolian axis will be formed. One should never build blind routes. One should always build networks of routes. The roads should always be connected. Theoretically, as well as profits-wise.

Should the issue of railways be talked about during the negotiations for the strategic deposits?

The efficient and profitable investments in the railway sector are always made by the private sector. Therefore, we should give opportunities to the private sector. When it is not that profitable but strategically important, the state invests in connecting the sites with the main roads and creating the networks.

Who will be in charge of maintenance once the railway is constructed?

The funds necessary to build the railway will be raised by the joint venture. Also it will be in charge of all the works until the operation. Once the road is built, the management can be done by the “Ulaanbaatar railway“ company. Or otherwise, the companies that built the railway, can create an operating company and use the railway for a certain period of time. It is too premature to create yet another company for the utilization of the railroad. I think that there will be a new railway network company in the future. This company can be in charge of the use and maintenance.

There are cases when the railway company is a monopoly, it may impose high transportation tariffs for third companies. How does one regulate or legislate such impositions?

Yes, a company that owns a railway and is in charge of its traffic and the distribution of the wagons may try to have an upper hand in its own interest. It became almost a natural phenomenon, so to say. Although the law states that the traffic should be free and the schedule and registration should have the same conditions, one finds the way to go around this. Although on the surface the prices look the same, the wagons are in queue and are not able to fit into the schedule. This is a danger. In order to limit this, the state intervenes and regulates.
The way to prevent this from happening, the basic infrastructure should be separated from the usage of the railway. It is stipulated in the law to separate the two. Unless you separate the base road from the wagons and locomotives that are running on it, it is very easy to abuse the system. If one transports his own goods only, it will be difficult to be cost-efficient. It is better if there are economic conditions that lead for the private sector to use the railways extensively so that it is cost-effective. Then it will be difficult to limit the traffic and only the economic incentives will solve the problem.

How should the ecological issues be addressed when the new railway is built? The antelopes migration routes are in the gobi area. Will it not be dangerous, if the route is cut by the new railway?

The current trends are that the ecological issues are taken into the consideration when the new rail and automobile roads are constructed. The railways are actually more environmentally-friendly than the automobile roads. It is difficult for animals to cross a busy car road. With the railways, animals will get used to the rail noise and learn to cross the road under the special tunnel bridges. Once the antelopes and deers find instinctively their route, then the railway will not be an obstruction to their migration. The construction of railways does not lead to extensive soil disruption and the creation of many side roads. From the ecological point of view, the railways are the least dangerous.

The Russian railway has wide rails. Will the new railway have the same Russian standard?

Mongolia has wide rails standard. Therefore, all the main railways that will be build in Mongolia will have wide rails. The side railways are allowed to have shorter rail standard. This is the world standard.
I think that Mongolia will eventually have many-standards railway.

What do you see as strong and weak sides of the future Tavan Tolgoi – Zuunbayan – Choibalsan railway that will connect us to the North East Asian markets?

Once the infrastructure is built in the southern regions, the natural resources can be extracted and revenues will be created that are necessary for the development of the country. People will settle in the area which is also important for the country’s security. The space have been occupied historically because Mongolians are nomadic people. It is difficult to grow vegetables and settle in the area. The weak side will be that the we will “impose our hands“ as it were on the environment there. The soil has to be disturbed when we start mining and building the railway.