Mongolia Embraces China With Railway to Lower Transport Costs
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Mongolia’s parliament adopted for the first time a rail gauge compatible with China, to ease transport of its second-biggest export, coal, to its largest customer.
The landlocked nation’s 1900-kilometer (1,200 mile) rail network was built with help from the Soviet Union in the last century, as Mongolia looked westward for markets and political support. Constructing the 240-kilometer railway from the Tavan Tolgoi coal basin using China’s standard gauge will save on transportation costs, and helps draw a line under Mongolia’s historical mistrust of its southern neighbor, now the world’s largest energy consumer.
The Chinese gauge was adopted for two routes to the border with 84 percent of votes in favor, according to the parliament’s website. The passage follows years of discussion.
“With this debate now put to rest, investors are likely feeling a sense of relief,” Chris MacDougall, managing director of Ulaanbaatar-based Mongolia Investment Business Group, said in an e-mail.
Winners from the change will include the operator of projects at Tavan Tolgoi, Mongolia’s largest coal deposit with 6.4 billion metric tons of reserves, including Hong Kong-listed Mongolian Mining Corp. and state-owned Erdenes Tavan Tolgoi JSC.
Track Contract
South Korea’s Samsung C&T Corp. was awarded a $483 million contract in May 2013 to build the tracks. Securing power and building signaling and maintenance depots will increase the costs of the project to $820 million.
In May, Mongolia Railway, the state-owned company overseeing the line, said construction was slated for completion in late 2016, according to Zorig Alimaa, the head of the project department at the time.
Using standard gauge rail instead of the broad gauge used elsewhere in the country will reduce the cost of transporting coal to China by $2 a ton to $4 a ton, Zorig said. Broad gauge adds costs because of the need to unload and reload coal before it reaches China, he said.
Imperial Russia adopted a gauge of 1,524 millimeters in 1842 for military purposes, as a way to slow down an invasion by rail. The gauge was built across the Soviet Union and many of its allies, including Mongolia. Standard gauge, used in China, is 85 millimeters narrower.
In April, a consortium of four companies established the Gashuunsuukhait Railway joint venture, which is planning to build and operate an 18-kilometer standard gauge railway to straddle the Chinese-Mongolian frontier. The 240-kilometer railway from Tavan Tolgoi will connect with this trans-border line. The shorter line didn’t require parliamentary approval.
To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Iain Wilson
