By B.Khaliun
CoalTrans–Mongolia in Ulaanbaatar on June 22 and 23 brought together international coal traders to study opportunities in the Mongolian coal sector. Mongolia’s confirmed coal reserve of 162 billion tons is likely to rise when additional exploration is done.
In 2010, total coal production was 25 million tons, and 18 million tons of this was exported to China, in a historical first. The remaining 7 million tons was used inside the country. The Government estimates domestic demand reaching at the most 20 million tons by 2025. That leaves Mongolia with abundant opportunity to export even 100 million tons by then.
At present, most of the output is from South Gobi province, where the coal lies near the surface, keeping extraction costs low. The main producers have been, with output within brackets, the following:
1.MAK (5 million tons),
2.Qinhua-MAK (1.8 million tons),
3.SouthGobi Sands (2.5 million tons),
4.Tavan Tolgoi Co (5.1 million tons), and
5.Energy Resurce (3.8 million tons).
A.Erdenepurev, director of the Fuel Policy Department of the Ministry of Mineral and Energy, told the conference that Mongolia has a lot of advantages but also some weaknesses that stand in the way of increasing exports rapidly. One of them is the lack of locally available qualified personnel. Finding mining engineers may not be a problem, but the country does not produce processing engineers. This has to be addressed as Mongolia aims to export value added coal, not just raw coal.
The Government is aware of the present limited capacity of the border stations, and has begun negotiations with China to remedy this. Infrastructure is poor, and Mongolia hopes railways and auto roads will be built as public-private partnership projects.
Z.Battushig, vice chairman of the Foreign Investment and Foreign Trade Agency (FIFTA), detailed the measures being adopted to ensure a safe investment environment. These include setting up of the Development Bank to finance major energy and infrastructure projects and the modernization of the Mongolian Stock Exchange, with cooperation from the London Stock Exchange. He added that investors are protected by Mongolia’s membership of the WTO, and by its being a signatory to various relevant international agreements and conventions. The country has double taxation avoidance agreements with 34 countries.
Participants at the conference came from India, China, Japan, South Korea, Hong Kong, Indonesia, Canada, Australia, Holland and the US. They freely and profitably interacted with Mongolian coal producing companies and coal deposit owners. Delegates included coal miners, traders, investment bankers, stock exchange experts, and economic journalists.
Reaching the coal to international destinations is a major problem for both the government and the private sector. This year the Chinese have levied a 17 per cent tax on Mongolian coal going to Tianjin port to be carried overseas. However, there is no similar restriction on coal for Chinese plants. The alternative is sending the coal to Russian ports. The problem there is that most Russian ports are owned by the country’s mining companies and they are likely to charge a high tariff for the services provided. If transportation costs to markets such as Japan and Korea become too high, that makes Mongolian coal less competitive.
“The gest coal consumer is just next to you”
David Fang, president of worldcoal.net and China Coal Transportation and Distribution Association, answered MMJ’s questions on how to break the transportation deadlock. According to him, Chinese railway services are overburdened with domestic traffic and really have little to spare for Mongolian needs. All depends on how skilfully Mongolian leaders can negotiate with the Chinese government and present their case.
He also wondered why Mongolia should be looking for far-away markets, “when the gest coal consumer is just next to you”. Told that diversification of markets was sound business principle, instead of relying on the Chinese as the sole customer, Fang said there is a solution to every problem, even if the road to it is long and complicated.
“India is as good a market as China”
Shailesh Deshpande, CEO of Gupta Coal India, told MMJ that with its booming steel market, India could be a very attractive market for Mongolia’s coking coal, but active and large-volume trade can begin only when Mongolia is able to resolve its transport problems, including tariff and other restrictions. India has enormous reserves of coal but the quality is poor so it buys coking coal from Africa and Australia.
He sees the problems, as the Chinese rail infrastructure is bursting at the seams and finding it hard to meet the needs of its own seaborne trade. Mongolian export will benefit when the railway infrastructure in north China is expanded.
“Media management is the key”
One of the most interesting issues discussed at CoalTrans Mongolia was risk management. Wong Chae Sing, Vice President of Asia Management, said proper media management was essential for mining companies to succeed. Environmental pollution and safety-related issues will always concern people and “media management is a key part of crisis response”. Accurate information sympathetically presented will allay people’s concern and lower tension. He referred to instances when Chinese mines were shut down following powerful media campaign.
He also felt the gest risk in mining was fluctuation on currency exchange rates as this affects the cost of material, equipment, sale price and thus profits.