Are the Tavan Tolgoi preconditions doomed to a premature death?

Have the tables been turned in the matter of preconditions in the choice of a partner to operate the Tavan Tolgoi mega deposit? Are Russia and China now calling the shots instead of agreeing to Mongolia’s demands?

Some months ago, Mongolia appeared to claim it was in the driver’s seat when it insisted on certain preconditions being met before deciding on a partner for the project. The most important of these was  the one relating to advance payment. This matter is not quite the same as the USD250 million received from the investors in Oyu Tolgoi. In the case of Tavan Tolgoi, the amount would be linked to other  demands. If the partner was to be from its two neighbours, Mongolia wanted  their governments to lower rates of transit transport and allow faster access to, and also wider and easier use of, port facilities. These are essential if new export markets are to be found for the Tavan Tolgoi output. In the case of  the northern neighbour, Mongolia also wanted Russia to import more of its meat and to export agricultural products on more favourable terms.  If it were to be a U.S. company, Mongolia’s precondition was a free trade agreement with the U.S. government. One reason why the choice of operator is being delayed is that China and Russia are yet to respond.

Parliament’s approval of the railway policy and of amendments to the Minerals Law are steps forward but the Tavan Tolgoi resources would hardly qualify to be considered as wealth if favourable transit transport rates are not obtained from China and Russia. To earn revenue for the country, the coal has to be sold to markets beyond the seas and for this, railway transport across the territories of the two neighbours is essential. The more expensive this is, the less the income for Mongolia. However, there has been little progress in the negotiations on this matter of vital interest. The reason is that Russia and China are placing their counter preconditions on the table. If a Russian consortium is not chosen as the operator, Mongolia will have to pay rates three times what Russian companies pay to transport its coal exports along the far eastern vast steppe. If a Chinese company is not selected, there will be no priority for the coal transport in the already overcongested Chinese railway network. Delay in reaching sea ports will hurt export potential. Reports of all talks are full of words such as “will jointly consider”, “take a positive view”, and “deserves further consideration”. However, nothing has materialized. The Mongolian Government is stuck with the prospect of expensive and uncertain transport corridors for the Tavan Tolgoi coal.

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