“We are not getting the true price for our mineral products”

The President has claimed that he persuaded Russia to agree to reduce railway tariff. How does it help Mongolia?

Before 1990, Russia was our major trading partner, and 97 percent of our trade was with them, with China and other countries accounting for the rest. This changed between 1991 and 2005, when trade and economic relations with Russia almost collapsed because of Russian economic problems. In 2010, $82 million or only 3 per cent of Mongolian exports went to Russia. Most of this was fluorspar, meat and small quantities of cashmere. On the other hand, 33.3 per cent of our total import is from Russia. For our purpose here, we must note that all trade with Russia is through the railway.
Now, Russia is not a member of the World Trade Organization and thus does not have to follow world norms when fixing export-import freight tariff. Russia adopted a free-market economy at the same time as Mongolia, but most of its trade is still with former soviet republics such as Ukraine, Belarus, Kazakhstan etc. These countries pay much cheaper tariff than Mongolia. There is still no customs barrier and no import tax among these former soviet republics. While they pay at the domestic rates when trading with Russia, goods to and from Mongolia are treated as part of foreign trade and have to pay roughly double.
Mongolian and Russian transportation ministries have held several talks in the last four years to see how the high tariffs for Mongolian exports to Russia can be reduced. After all, there was little difference between Mongolia and the Soviet republics. During the Prime Minister’s last visit to Russia, Russia promised to reduce railway tariff by 52 per cent. This is not actually very much, as the reduction is from the presently charged rates which are twice the Russian domestic tariff. Besides, there has been no follow-up action on the ground. Mongolia continues to pay at the old rates.

Do you agree that Tianjin is a better choice for the export of Mongolian coal than Vostochny and Vanino, which are much farther from our border, and goods will take five times longer and be more expensive to reach the Russian ports? 

The Mongolian policy is not to export 100% of its mining products only to China, which binds us to one price agreement. Big markets such as Korea and Japan await us and they can be more easily reached from Vostochny and Vanino sea ports. Carrying one ton of coal from Tavan Tolgoi to the Naushki border point in Selenge province costs about $40, and it will be another $40-$50 from Naushki to Vanino. That makes the total transportation cost for a ton of coal $80-$90, while in 2010 the price of coal at the Chinese border was $50. It has now risen to $60-$80. That way, sending coal to Vanino is obviously unprofitable. There is one more possible route -- Tavan Tolgoi to Sainshand to Choibalsan -- but the railroad is yet to be built. However, the price I mentioned was of raw coal. Processed coal can cost $130-$150 per ton, and the transport cost will not appear so then. And it is processed coal that we mean to sell to Japan or Korea.   
     
Vostochny and Vanino are in the underdeveloped Far Eastern region of Russia. Can they handle the vast volume of the anticipated exports?

In the early 1990s, Mongolia used Vanino port via Naushki to export copper concentrate to Japan. I believe Vanino has two all-season warehouses with the capacity to store 20-40 million tons of products. It is used for Russian mineral exports to Korea, Japan and China. The total volume of Mongolian export through Russian railways and ports will not be over 10 million tons. We plan to mine 60 million tons of coal in a few years’ time but most of it will still go to China. Plus the handling capacity of our border points has to be substantially improved.  
Mongolia must build its own terminal in Vanino. This will demand a huge investment but we can do it with international participation.

Үргэлжлэлийг Mongolian Mining Journal-ийн ¹008 (034) дугаараас уншина уу.