T.Naran, Director of The Coal Association of Mongolia, speaks in this interview about the visit in January of a group of Mongolian coal companies to Tianjin in China, and the needs and hopes of the coal sector for its development. I take it the visit was to study the suitability of the Chinese port as an export point for Mongolian coal. Tianjin is the only sea port that the Governments of both countries have agreed to use for these exports. Last year coal alone accounted for 30% of our export revenue, replacing copper concentrate as the country’s leading export. Our coal will now go to new areas in China and also beyond China, and Tianjin will play a role in this trade. Our Association took part in the 5th meeting of a working group in Ulaanbaatar on December 13, 2010 on development of Mongolia-Tianjin trade and economic cooperation. There I suggested a meeting with coal as priority, and the way Tianjin can be used for its export in a way most satisfactory to both countries. This is how the business meeting of private coal sectors and officials of our two countries came to be organised in Tianjin in January.
Around a dozen Mongolian companies exporting coal attended the meeting on behalf of the Coal Association, while the Government representatives were from the Fuel Policy Department of the Ministry of Mineral Resources and Energy, and the Coal Division of MRAM. The Chinese side comprised representatives of Tianjin Development Committee, the Tianjin port administration and the Tianjin Coal Association. The Mongolian private companies were Energy Resources LLC, MAK, Tavan Tolgoi LLC, Erdenes Tavan Tolgoi LLC, Hunnu Coal LLC and some new companies getting ready to begin exporting coal.
Which facilities at the port did you visit?
We visited the commodity exchange market that has been functioning for ten years, and serves traders from south and east China, and also countries such as Japan, Australia, India, Indonesia and Korea. This is an international market and will allow Mongolian exporters to get market prices for their coal. At present, our trade ends at the China border. Inner Mongolian companies buy all the coal and then offer it at the Tianjin market at world prices, making a 200%-300% profit. The port administration said it last year received over 30 million tons of coal from Inner Mongolia in 2010. At least half of it was from Mongolia. Our companies lose a substantial amount of money because they are now unable to carry the coal to Tianjin and have to sell to border traders.
If Inner Mongolia could manage to transport 30 million tons, why shouldn’t we be able to carry, say, 10 million tons along the same railway and road routes? We cannot sell at the global price if we don’t offer our output at the world market. The Tianjin market has an attached transport and logistics center, where coal is loaded and unloaded, separated according to type and grade, weighed and stored. At the moment, we sell all coal directly from the pit, at a flat rate as we do not have gradation and classification facilities. Each country can have its own standards of classification, but we do not have any. The Tianjin center separates the coal not only according to its use, but also by its ash, moisture and calories content according to Chinese standards. The quality determines the price. The center unloads and classifies coal from around 2,000 wagons per day, yet the whole place is so clean. The next meeting of the working group will be in March, and there we shall explore means to carry our coal to Tianjin.
What are the advantages the Tianjin free economic zone offers to Mongolia?
China has so far been focused on developing the economy of its south eastern and southern regions. This is now shifting to the northern region. It has built a new district Binhai in Tianjin and marked it as free trade zone. It is constructing roads and buildings, expanding ports, redesigning facilities to process and receive different types of mineral and other products. It is altogether a mega project. The zone will be successful only if it can attract large local and foreign investments and the Chinese are offering a lot of incentives. We in Mongolia have to be a part of this development and get our own space in the zone. This will open up for us opportunities to be part of a much larger economy and receive many exemptions and preferential conditions. We all felt the Chinese attitude to all investors, including foreigners, was very warm.
Agreed, it will offer many opportunities, but does it not also pose a danger of our getting to be too dependent on China?
There are those who say that Mongolia is dominated by China, that if China closes the border, Mongolia will suffer, that our lopsided foreign trade is a threat to national security and Mongolia might lose its independence. We have to judge if there is any truth in all this or are these said only to create fear? I think it would be saner to say that as the provider of coal, it is rather Mongolia that will keep other countries dependent on it than the other way round. China can keep its economic super power status only on a steady supply of coking coal from Mongolia. In 2009, 65% of China’s coking coal imports came from Australia but last year this dropped to 35%. China understands that it is risky to get all its supplies from one country, so it increases the number of suppliers and has begun importing more from Mongolia. It has proved to be the right strategy. When Australian mines shut down during the flood and there was scarcity of coal in the world, Chinese steel companies were not affected as they had Mongolian coal.
Besides China, Japan, Korea and India are major consumers of coal, and they all want to buy coal from Mongolia. Indeed, they are in competition for this. As buyers, all these powers are dependent on us to a certain degree. We have to comply with world trade standards to make the most of this opportunity. Also trade beyond China has to be seaborne and our closest export point is Tianjin.
Please elaborate on the MoU between your association and Tianjin Coal Association.
The Tianjin association is large, with over 1,000 members. We signed an MoU to create conditions so that Mongolia’s coal can be sent to consumers in southern China and to the world market through Tianjin port. The MoU offers preferential conditions to Mongolia’s exporters, in consideration of the difficulties they face. Our roads from the mines to the border are poor, we have only two under-equipped border points -- Shivee Khuren and Gashuun Sukhait -- for the large volume of the anticipated trade, local administrations sometimes close these and cause problems for companies. The MoU also calls for an efficient and quick payment system.
How will these problems be solved?
The capacity of the Gashuun Sukhait and Shivee Khuren border points has to increased on a priority basis. Transportation inside Chinese territory has to be satisfactorily arranged. If our Government moves fast, it will not take a long time to solve all these problems because private companies are doing a lot of work anyway in this regard. They are building roads, producing electricity and developing infrastructure with their own resources. As the border points are the state’s responsibility, the private companies can’t do anything there. We have to take our coal to Tianjin port, and only the Government can make this possible, quick, and easy.
We can reach the international market through three Russian ports also. What is your opinion on this?
I cannot comment on the geopolitical aspects of the controversy. As a coal producer I can only say that transportation costs should be kept low. The less it has to be carried from the pit, the more profitable coal is. The railroad distance from Zamiin-Uud to Tianjin is less that 1,000 km, while the Sainshand-Vostochny-Vanino-Vladivostok route is 5,000 km long. The transportation cost is five times higher and the turnover is five times less. A market thrives on turnover. The Russian far eastern territories are not populated, with only a few villages. Tianjin, on the other hand, is already a world class trade centre. It will take some time for Vostochny and Vanino to develop as sea ports. Infrastructure there is poor. They cannot accommodate even a 200,000-ton ship. Just being on the sea does not make a place an attractive port. Rail links to these two places are weak. They handle almost no freight and have an abandoned look going through unpopulated taiga forests. I don’t understand how large volumes of coal will reach the international market by this route.
What is your view of the Sainshand industrial park?
Energy Resources is building a refinery plant on its mine. Other companies are planning to follow suit. The Government wants a railway from Umnugobi to Sainshand, and to establish a chemical and industrial park there, bringing coal to be processed. If coal can be processed near the pit, what is the point of transporting it 400 km or more to Sainshand? This kind of “strange” thing should not be done by the Government. If there is a sincere wish to build the economy of the country, offer the mineral resources to the international market and sell it at a high price, thus improving people’s lives.
What about exporting our brown coal?
Our problem is that we can’t invest in and develop mines that are located far from the railway or the border. That is where our brown coal is, waiting to be exported. This must change. At the Tianjin meeting, the Chinese repeatedly said they needed lots of brown coal and were willing to invest in processing plants and mines that are distant from developed infrastructure. The brown coal price can reach 2-3 times more than at present.
What do you expect from the next working group meeting on development of Mongolia-Tianjin trade and economic cooperation?
I expect several decisions of consequence and hope the Government will implement them. It is true that economy and politics are linked, but in our case, we find Mongolia takes the narrow view of short-term profit and ignores long-term strategic economic issues. That is why it is talking about transporting coal 5,000 km to Russia “to protect our independence”, an old ploy to appeal to popular emotion, without much rational basis. The people should not be misled. Mineral resources are fetching higher and higher prices in the world market, and the gains from this profit have to be enjoyed by the people in the shortest possible time. Rather than making people queue for MNT21,000 every month, it is better to involve them in major mining projects, thus producing world class products, so that every family will have a better life. No foreign country prevents us from that. Actually, they encourage us and offer cooperation, but we put obstacles on our own path.
Do you think adequate professional opinion is sought before state policy is formulated?
The most vocal people when anything is discussed are those who don’t know about the subject. They cause confusion, divert attention from the main point, hold demonstrations and hunger strikes and obstruct rational thought. Qualified and informed people are busy with their work and have no time for delivering speeches and demonstrating on the street. Market research by some companies collect information not available with the Government. Energy Resources knows how most countries in the world classify coal, but Government people and organizations have no data on this when making policies and decisions that affect the future of the country and people’s lives. Our decisions maker ought to listen to what professionals have to say about their areas of specialisation. The meeting in Tianjin revealed how little faith private sector representatives had in the state and its representatives.
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