The coal sector has been expanding rapidly in recent years but is it realistic to set a target of exporting 30 million tons of coal this year? We hope that this year’s export volume will exceed last year’s, but this will depend on China’s demands as most of our coal goes there. We can export more than 30 million tons if coal consumption in China remains high and, of course, if the price is right. All our coal deposits have started increasing their capacity.
Coal export depends on a few things. Coal trucks lose much time because of our bad roads. Between 10 and 15 per cent more can be exported if road conditions are improved. Then there are problems with our export points. Their present handling capacity is very low and they also do not have internationally accepted standards. Another factor is that there are too many holidays and festivals when no work is done. For instance, there is the Chinese Lunar New Year, which is followed by the Mongolian Lunar New Year, and finally Naadam. Altogether such events keep the ports inoperative for almost two months of the year. These issues must be resolved if we are to export 30 million tons of coal this year.
The average price of Mongolian coal was $52 per ton in 2010. This went up to $100 last year, according to the National Statistical Office. How do you think we can get a higher price in keeping with international rates?
The price basically depends on the quality of the coal. The coal that we export is classified into four categories -- coking coal, medium coking coal, high quality power coal and PCI. Each category has its own price. The average price rises or falls depending on how much of each category is sold at what price. Coking coal prices are on the rise for some time but not to the level we want. The Chinese are also buying less because of the global economic crisis. It is likely that coal prices will not show a steep rise.
Coal companies say they sell at prices shown on Coalword.net or offered by Chinalco. Miners have long complained that these do not reflect the market reality and that producers have no voice in determining price. When selling to China, it is a buyer’s market and the words of Coalworld.net are final. Mongolia should set up a mechanism whereby the selling side has more say in determining the price. The companies should come to an agreement among themselves and agree on the minimum price they would ask for. At present, the Government imposes tax according to its own valuation. There is disagreement on this score between the Ministry of Mineral Resources and Energy and coal manufacturing companies.
I think it is imperative to reorganize the market mechanism so that both buyer and seller – in the present case, this means China and Mongolia respectively -- will have a fair say in determining an equitable price.
How much of our exports is coking coal?Most of the coking coal comes from the “small” Tavan Tolgoi -- Ukhaakhudag. Medium coking coal and high quality power coal come from SouthGobi Sands and Qinghua-MAK operating in Gurvan Tes soum, Umnugobi. I don’t know exactly what percentage of the export is coking coal. It’s probably 50:50.
Recent increases have meant that coal accounts for 47 percent of the total exports of Mongolia. How does it affect diversification of the economy? Our economy has become mining-focused, and coal has a major role. Exporting 21 million tons of coal is not a small matter. Erdenet’s copper concentration exports are just a fraction of this in terms of volume, no more than one month’s export of coal. But the point to ponder is that all this coal has only one destination. If China decides not to buy any of our coal in 2013, then our export will drop by 47 percent. Both the Government and the companies need to make a Plan B. It is impossible to transport 20 million tons of coal through railways. If South Korea and Japan decide to buy our coal, high transportation expenses will be a factor.
China will not like to be totally dependent on supplies from Mongolia. It is buying large quantities of coal from Indonesia and Vietnam. Russia and Kazakhstan are also coming into coal market as players. All these countries have good railway connections with China. We need to strategise how to retain our share of the Chinese market.
Plants have come up just 300-400 meters inside the Chinese border where Mongolian coal is processed, adding20-30 per cent value to it. Mongolian law does not allow any similar construction in the protected border areas, and so Mongolians cannot do the processing and then export the coal at a higher price. Energy Resources, MAK and SouthGobi Sands are considering building processing plants at their mines, but we are slower than China where such things take a year at most. Here, it takes a year just to get the permit. The Government decree that companies should go for value added products has not been widely implemented. Today only one or two small coking coal ovens are in operation in Bayan-Ovoo soum. Now Energy Resources is working on building one.
Bayannuuraimagin Inner Mongolia has started charging $10-$20 per ton of coal from Mongolia. What is your take on this? Let me tell you something that happened around last November in Inner Mongolia. Companies in Alishaa aimag there,together with the local authorities, formed a Value Determination Committee and offered a rate for Mongolian coal without any fair basis. Such locally taken decisions in these matters are very irregular and as China is a member of the World Trade Organization, no regional grouping there has a right to do any such thing. However, the decision was a blow to all companies operating in our GurvanTessoum.Discussions were held and the decision scrapped. Today China is increasing its taxes. Wehave to wait and see if the tax increase applies only to Mongolia or to other countries also. If the decision is made by the Chinese Government, then it should be the same for all. The decision to impose tax on coal exports from Bayannuur aimag is certainly illegal.
What do you think of all the talk about taxing coal exports? Mongolian companies have to pay many local taxes, including those for registration, inspection and pollution. And now a tax threat looms over coal. It is said that gold and copper export earnings carried Mongolia through the economic downturn in the 1990s. Today, far less gold is mined and coal has become the main source of tax. Much money is needed to fulfillall kinds of promises made by political parties and they are now looking for getting it from those who bring large chunks of revenue to the country.
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The coal sector has been expanding rapidly in recent years but is it realistic to set a target of exporting 30 million tons of coal this year?