Coal is our only fragile hope for the next year

The ruling party is arguing internally about “who will own the coal”. Anyone who understands politics realises that the winner of this “war” will not be Mongolia, but some government official or group with self-interest. That the winning side will continue to steal coal is as certain as ever. Xi Jinping, “leader” of the global trade war and chief author of the Wolf Warrior (Xi Defangs the Wolf Warrior) policy, will surely retain his seat while our leaders pursue petty interests by waging an internal “coal war”. That the powerful policies of a neighboring country are defined in “wolf warrior” terms is evidently obvious from the ongoing trade war. As soon as Mr Xi was re-elected as President of China, he made the statement, “We will continue our zero-COVID policy”. It became clear that the trade war would also continue. The Oyun-Erdene government should therefore pay attention to Mr. Xi’s statement and calculate its next foreign policy moves, instead of drowning in the “who will make more money from coal?” group fight.

The continuation of the “zero-COVID” policy is not good for Mongolia. As in the COVID years, it means that even if there is coal, the border will be closed and the suffering will continue. Economist G. Ganzorig, said during last month’s Risk Forum: “Some years ago it was said that the world was flat, but today the situation has changed. A situation reminiscent of the Cold War has been all around us for a long time now. China pursues a very strong foreign policy. We cannot ignore the ambitious ‘wolf warrior’ approach to become the world’s strongest economy”. In the 14th Five-Year Plan, covering 2021 to 2025, China promised to triple GDP per capita. During the COVID crisis, China’s central bank did not inject 20% of its GDP into the market, as the US did. In other words, there is still an opportunity for China to increase the money supply. If it is possible to print more money, it means that China is sticking to its core policies. China still lags behind America in many sectors, including technology, human development, innovation, etc. But experts point out that in the long term China will surpass America. This is not just a guess. If you look at the post[1]COVID world, nobody has enough income and business activity has stopped. All countries injected unlimited amounts of money into their economies, around 10% or 20% of their GDP. The large amount of money coming into the market is paid for by inflation, devaluation and rising interest rates. I wonder how many of our politicians understand the phrase “it’s time to pay the bills”? As the post-COVID crisis continues, the war between Russia and Ukraine, China’s aggressive policies and the effects of US monetary policy together will continue to negatively affect the external environment over the next two to three years. In short, it is very likely that the optimistic economic forecasts made by the authorities will turn out to be exactly the opposite.

The Oyun-Erdene government has a lot to do if it wants to export 36 million tonnes of coal, sell copper concentrate at $7,000, keep inflation at 8% and achieve 5% economic growth. Special attention is being paid to coal. It must be accepted that the high-cost Tavantolgoi-Gashuunsukhait railway will not be able to carry coal for the next two to three years, and the revival of border points will not happen within the next few years. Instead, we should focus on solving the immediate problems affecting the coal industry. Understanding that “ today’s lungs is better than tomorrow’s fat” (Mongolian proverb) and accepting the fact that China’s Zero-COVID policy will continue next year, there is an opportunity to export as much coal as we want and earn a large number of dollars. Let us ask ourselves, what are the problems now facing the coal industry, the main cash cow?

The first big problem is mining royalties. This is a common problem that has been discussed for many years. The government says it will set a standard price instead of a contract price, but it is no secret that the standard price today is too far from real price, it has almost reached “outer space”. For this reason, export figures continue to be incorrect. It would be too naïve to say that the Ministry of Finance does not understand the importance of an accurate calculation of coal revenues and a realistic estimate of the economy, which would have helped solve the problems. The Mongolian Coal Association sent an official letter to the state secretary of the Ministry of Finance in mid-September last year, but so far, no concrete response has been received. The letter asked for “a review of the situation in which royalties are based on a standard price that is several times higher than the actual sales price. Unjustified tax increases imposed on coal companies are leading the entire industry to bankruptcy”. In the difficult post-COVID period, companies affected by inflation, rising fuel prices and stagnant coal exports cannot afford to pay the high taxes demanded. There is a risk that the coal industry, as a whole, will collapse within a short time because of high taxes, and the flow of foreign exchange will be significantly reduced. At a time when it is clear that in the next two or three years, we will be living on coal revenues, the government should not be so stubborn and acting like a bully on mining royalties.

Next is the problem of border customs and border crossing capacity. This problem is as big as mining royalties. This issue has been discussed for many years, but no solution has been found yet. For example, the Gantsmod-Gashuunsukhait border crossing still does not have international status. Currently, the decision to open or close a border crossing is taken at the level of the bagh governor in Bayan-Uul province of Inner Mongolia. It is time to discuss and address key issues with our neighbor, such as full utilization of border crossing capacity and maintaining annual exports at a minimum of 30 million tonnes. This is the second homework assignment that the government must do to pull the economy out of crisis.

The next issue that needs to be addressed in the coal industry is transportation. The National Road Transport Center continues to issue ‘C’ permits to private transport companies. The problem is that transport and intermediary companies, whose owners are mostly Chinese, unreasonably raise the price of transport once they have obtained a transport permit. The right way is to formally issue “C” permits to major exporting companies based on their export volumes, rather than to transport companies. In this way, the confusion and mess referred to as “the hell road” will be eliminated, and the cost of transporting will actually be reduced. If transport costs go down, coal companies will be able to sell their products at $200- 300, which is what the government wants, and increase export revenues. Finally, the coal industry faces many other challenges that only the government can address, such as the use of container terminals with lower costs and less delays at full capacity, and the hasty construction of rail links.

                                                                        Ts. Baasansuren         / October 2022. № 010 (167). /