B.Purevbaatar, Head of the Mongolian Railway Engineering Association, tells MMJ what is wrong with the State policy on railway and why there has been no progress in building the railway.
You have blamed the State Policy on the Railway for the muddle in all work related to building the railway. This is surprising as the policy was prepared with advice and input from Mongolian Railway Authority which you headed.
That is not correct. Political considerations dominated all three phases – preparation, approval, and implementation. I realised that implementability was nowhereas important as making political gains. Our railway may ultimately become a victim of this political game. I have been in the railway sector for 30 years, and I tell you that no member of Parliament or of any Standing Committee ever asked me for my opinion when the State policy was in the making.
I remember how the very first steps to put in place a State policy on the rail sector were taken by Da.Ganbold when he was Head of the Railway Authority, later renamed Railway Authority of Mongolia. This used to be the State office in charge of railway, under the Ministry of Road, Transport and Construction. By setting up a Central State office in charge of railway and transport, the Ministry took away all power and authority from the State office.
Then came Order 427, approved by Minister Kh.Battulga on December 28, 2010, which entrusted the work of preparing the bed for the new tracks to a committee headed by Ch. Ganbaatar,Advisor to the Minister. In due course, the committee reported the work was done, under the supervision of P. Boldbaatar, a member of the committee and Head of the Land Affairs, Construction, Geodesy, and Cartographical Authority.
Soon after, the Railway Authority declared the work had not been done in a professional manner or using approved methodology. It also refused to certify that the work reached acceptable standards. D.Mandakhbayar, Head of the Technical Policy Department at the Railway Authority, was in the committee and agreed that the work had not been properly. I, too, attended meetings of the committee that formally recommended using standard methodology to prepare the bed. But Minister Battulga stuck to his announcement that the railroad bed was ready.
Can tracks be laid on a wrongly prepared bed?
According to the Ministry, MNT30 billion has been spent by 30 companies for their work. All of these are Mongolian companies and their terms were that they would spend their own money on the work, and reimbursement is guaranteed by the Government. Payment will be made when the Development Bank releases $55 million for the project.
The present bed is unusable over at least 200 km of the planned 1100-km railway. The companies worked below standard to save money but it seems rectification will be hugely expensive. One wonders if the payment of MNT30 billion for such shoddy work can at all be justified.
Didn’t foreign companies, too, do some work?
Since it had been decided to give the work to domestic companies, the only foreign contribution was an earlier feasibility study by Mckinsey. No use was made of this study, though. However, the Mongolian Railway had already borrowed $6 million from Khan Bank to pay Mckinsey. M.Enkhsaikhan,former Head of the Mongolian Railway, has warned that apart from this $6 million and the MNT30 billion spent by the domestic companies, some $400 million will be needed to pile soil afresh. This is where we stand after four years of work.
What did the State inspectors do?
They could begin their checks only after the bed setting work was done. They are not happy with both what and how it was done.
You mentioned the first attempt to set a State policy on the rail sector made during the time of Da.Ganbold. Did professional organisations never take up the issue afterwards, before the present State policy was finally adopted?
You must remember that until 2004, Ulaanbaatar Railway and the Railway Authority were the same and one organisation. This means the State office in charge of rail issues was subordinate to the Russia-Mongolian JV. R. Rash worked for the State office and at the same time was head of the Ulaanbaatar Railway JV. In 2004, following its separation from the JV, Ganbold was the first person to head the State office as an independent organisation.
When Mongolia failed to get 51% ownership of Ulaanbaatar Railway, the Government decided to keep the JV out of building railways for the mining sector. Separate arrangements were made and licencesallocated.Energy Resources and Bold Tumur Yuruu Gol were granted a few. What they have built is not part of the State network and is a privately owned and run railway. However, we would prefer to have the use extended beyond private purposes. Not just mined goods, but the railway should be open to passengers and other cargo.
When Battulga became Minister of Road, Transport and Construction in the 2008 coalition government, he wanted all railways to be State-owned, given the sector’s social and economic importance. His further argument was that these railways served strategic deposits, the border areas and cities and so demanded State control. The issue is complicated and there can be no easy solution.
The State also took upon itself the job of deciding on the gauge width, a matter of strategic and geopolitical ramification. Under Russian persuasion Mongolia opted to continue with its wide gauge system in the new railway policy. Liberalisation in the railway sector has seen only haphazard results. It cannot touch Ulaanbaatar Railway because of its special status as a Russia-Mongolia JV. Private railway companies can own their own wagons and also locomotives, but their use is restricted. Bold Tumur Yuruu Gold imported a locomotive, only to find that it cannot use this to carry iron ore to Ereen, as Ulaanbaatar Railway will not permit private locomotives or wagons to run on its rails.
The State policy calls for payment to use infrastructure built by the State, much as Energy Resource levies a fee on trucks that use the road the company built. Mongolian Railway would be the operating company of the network. I get the distinct impression that the policy has been manipulated by some people for their own interest.
Are you suggesting that the State shouldn’t have any role in railway matters at all?
I see it playing a regulatory role but there should be no active participation or ownership. Why should the State take up the sole responsibility for building railways, when we have the PPP (public-private-partnership) model, along with the BOT (build-operate-transfer) practice? In these, companies build something with their money, run it for some years until it recoups its investment and makes a fair profit, and thereafter hand over ownership to the State. We can also try the BT (build-transfer) model, where the State takes over ownership as soon as a company has completed building something, and then reimburses the construction costs, along with interest, over a number of years. A State Ministry should not see itself as a builder or machinery operator.
What likelihood is there that the policy on railway transport will be changed?
There is some talk that Parliament will discuss some changes in its Spring session beginning on April 5. One of them has been reported to be the justification of getting the first two phases implemented together. However, some do not favour such small things to come before Parliament. Simultaneous implementation involves concurrent building of the railway to south and to the east. M. Enkhsaikhan wants Parliament to review the gauge width decision but the Prime Minister is against reopening the chapter. So there are uncertainties about any change.
What do you think about the gauge width?
As a railwayman, I have no preference. Wide, narrow, narrower, wider – it’s all the same to us. The railway to Kharkhorin can be 1800-mm gauge, if it is found to be more efficient. The first railway to move Nalaikh coal had gauges of 960 mm and 760 mm.
The specific measurement is immaterial; instead, our focus should be on identifying what size would be most suitable for what use. We can choose any gauge for the railway to transport coal from Tavan Tolgoi to Tsagaankhad, 267 km away. But if we want to skip Tsagaankhad, for environmental or other reasons, and want to take the coal into China directly, we should build the same narrower gauge as is used in China. If we target seaborne exports through China, we should use that gauge, so that the coal can reach a sea port with out having to be unloaded and reloaded in Gantsmod. This is not imperative, though, for China will have to anyway reach our coal from inside their border to a designated port. Indeed,the agreement between Erdenes Tavan Tolgoi and Chalco has a provision that at some point of time one third of the total coal will be exported to Japan.
We can build a wide-gauge railway if we decide to continue the present practice of unloading the coal at Ereen, where it is reloaded on thousands of Chinese wagons with a narrower gauge. The export process ends once the coal crosses the border. It becomes China’s.Its Mongolian origin is concealed, with China mixing it with its own washed coal and exporting the result under the name “chinmon” or “monchin”. It may be argued that Mongolia is not losing anything, and the importer can do whatever it wishes. But at the end of the day, we are helping Chinese companies make a huge profit. Battulga derides those who want to give our coal to China but, for all practical purpose, this is what we actually do if we use the wide gauge to reach coal to the southern border.
So you are saying that coal from Tavan Tolgoi can be sent straight to China if our gauge is the same as China’s?
Yes, except for one catch in international law. Our locomotives cannot run in China, or in Russia, and our operators are also not allowed to drive their engines. Wagons of coal, however, will go on, and will return to the border after unloading, from there to be driven by a Mongolian operator in a Mongolian locomotive. This is what happens now at Naushky.
A distance of 10 km separates our terminal at Gashuunsukhait from China’s on its side of the border. If we build a gauge broader than in China, our coal will be unloaded at the border, and China will decide how to take it across that 10 km. This may be by heavy load truck or China may build a railway over that stretch.
There is no railway now to the Tsagaankhad port, and unloading and reloading at the border is the only way possible. The competition for space in the terminal could very well mean loss for Mongolian companies. However, railway lines can be built to link Tsagaankhad with Gashuunsukhait, 22 km away.
That would mean more empty wagons coming back. What economically efficient use can be made of them?
They could bring back cement and other building material required for the development ofthe Tavan Tolgoi project. Our engineers should plan the axleload to be higher to enable this use. Battulga wants two railways with the same specification to share one network, so that non-mineral freight, passengers and also coal can be moved freely. This is possible if the railway(s) built by mining companies are allowed to remain outside the network. The wide- gauge railway from Tavan Tolgoi to Gantsmod can be State-owned, while a narrow-gauge railway built by Erdenes Tavan Tolgoi and Energy Resources can be used exclusively for coal transport. This can be one way out of the vexing gauge dispute. Mongolian Railway can build the wide-gauge railway as stipulated in the State policy, and the railway for mining exports can be a separate project with separate regulations.
Where should the transshipment facility be built?
Usually, the facility is the responsibility of the importing country, but this can be changed by bilateral agreement. Some issues are still to be resolved. For example, cement from China was to be loaded to our wagons in Ereen, but at the moment this done at Zamin-Uud.
Apart from the track gauge, better coordination needs similar transport capacity on both sides, no?
We can build a railway having 100 mtpa capacity, but the gauge change will mean a loss of 30-40 percent, so we shall need double the investment to have the requisite increased capacity. You are right that efficient and smooth cargo transport is possible when the two countries press into action the same number of locomotives and wagons. The traffic schedule has to be strictly observed. If either side is faster, or slower, the whole thing breaks down.
What is the status of the talks on transit opportunities? Are we anywhere nearer a deal with our two neighbours?
I have made a formal submission on this issue to President Elbegdorj. It is a matter of serious geopolitics. The ‘horizontal’ railway favoured by Battulga ignores geopolitics, and is only for domestic consumption.
The transit issue involves Mongolia, its major supplier Russia, and its major buyer China. It has been discussed at UNCTAD, which settles multinational disputes, and now we need two separate bilateral agreements. When A.Gansukh met the Russian Vice Minister of Transport in Vladivostok on February 25, 2010, Russia agreed to a meeting with China and UNCTAD within six months but it is taking much longer. A lot of paperwork and documentation is involved. China is expected to offer us both railway and road transit facilities. It already has similar agreements with Kazakhstan and Iran.
We allow Russian coal transit through Mongolia on its way to China, and it is fair for us to expect return facilities to carry our coal through Russian territory to sea ports there for export to third countries.
Russia has huge amounts of coal in Western Siberia, with several deposits three times ger than Tavan Tolgoi. It plans to transport this coal by rail to Vladivostok, by building a 450-km railway with 15 mtpa capacity, part of which will pass through the Sayan Mountains. The project was halted some two years ago as the Russian government did not release the 40 percent of costs it had promised to bear, the rest coming from Elginsky. I believe the economic viability of the ambitious project is strongly suspect. But if it is resumed, it would only be because Russia will have a market for the coal. This has to be to the south, and the coal will have to pass through Mongolia.
When Vladimir Yakunin, President of the Russian Railways, was here he held talks with the Aspire Mining management and also with the Mongolian government. His interest is to secure a connection to Mongolia’s major railway network by building a railway from Tsagaantolgoi, Artssuuri to Murun, Erdenet. His confidence that he will get a deal has been dented by Premier Altankhuyag’s categorical refusal to include this railway in the State policy. If Russia gets its way, our coal export will be under severe threat from Russian coal.
Why do you consider Shiveekhuren port to be of strategic importance?
It is all because of Russia. All its worries will be over if it can transport its coal through Shiveekhuren. The World Bank is financing a $7-million feasibility study of both the ‘western vertical’ route from Artssuuri to Shiveekhuren and its eastern counterpart. I am head of the project.
Shiveekhuren thus could one day become the hub for sale of coal from western Mongolia, western Siberia and other nearby regions. Anticipating its transformation into such a gateway, China plans to have three separate railways to Shiveekhuren. An old line is already there, while another has just started operating. All western Chinese demand can be met with coal from Narynsukhait, Shinjinst, possibly Khushuut, and Kyzyl, and it will all pass through this port.
Eastern Siberia is rich in thermal coal, and Russia wants to export power generated there. The present transmission line is up to Choir, but it can be extended to Ereen. Russia thinks it will be more profitable to export power from the coal than the coal itself. This is what our Shivee-Ovoo also does. Russia did not agree to our plea to run gas and oil pipelines through Mongolian territory. If power transmission lines connect our three countries, that would be more profitable than gas and oil pipelines. Russia exports power through Manjuur and supply outstrips demand at night. It may agree to give us the excess power, but our consumption is too little. Given the low demand for power in China and Mongolia, Russia wants to supply to European countries, where the daytime demand – when it is night here -- is huge.
Why is the World Bank interested in Bichigt?
The Chinese north east has a huge demand for coal which we can meet. A McKinsey study confirms this. But we cannot go beyond Numrug until a 7-year,$5-billion project builds a 1700- km railway. As Head of the World Bank study group, I believe that we should start with a link between Ereentsav and Bichigt. The initial trade turnover will be small but the promise is . We can export thermal coal from Khuut, and iron ore from Choibalsan. When the need arises, we can build a rail link to Sainshand. It will be a domestic project, without any gauge width issue.
As I see it, it will be most logical to first build a railway from Tavan Tolgoi to Gashuunsukhait, and then one linking Choibalsan-Khuut-Bichigt. I have explained to the related ministers my rationale and my impression is that they were convinced. The Sainshand-Numrug leg is our own internal matter. Work on a 70-km railway between China and Bichigt has remained suspended but once it resumes and is completed, it will be of great benefit to the entire region, more so when Choibalsan is also linked. I have given a presentation to Ch.Ulaan and N.Batbayar showing how connectivity to the Chinese rail network is profitable to all.
A team comprising National Security Council representatives and us made a study tour of the entry/exit points on the eastern -- Khavirga, Bayankhoshuu, and Numrug. Numrug is too far from anywhere and construction of a railway in the wilderness will not be easy.Bichigt is a far better and worthier candidate for developing a railway link.
Do railway professionals have ideas that can be seen as an alternative to the State policy?
Our job cannot be to formulate policy. For example, we can at most give the technical opinion that the gauge width should depend on what the main purpose of a proposed railway is, and, therefore, Mongolia can have different gauges for different railways.
Our two neighbours have different gauges, and this complicates our decision making process. ‘De Facto’ D.Jargalsaikhan has said we can be a country like Panama, which earns revenue by linking two oceans with a few kilometers of canal. He suggests we build a wider-gauge railway to the north and a narrower-gauge one to the south, seeking a monopoly over the transfer processes in Russia-China trade, too. We have told him we shall study the proposal, but my technical sense says it will not be easy. It is not difficult to change the gauge in passenger trains, but freight trains are something else altogether.
And if the cargo is mining products?
I think 60-ton wagons are too small for mining cargo. While 80-ton wagons make more economic sense, their construction will be a challenge. The wagons themselves will need to be less heavy, maybe made of aluminium. The axle load has to be 25-27 tons. Our engineers studied the Canadian railway system last year and found that in hard winter conditions, brakes do not work if the train has more than 115 wagons. Long trains invite safety concerns when it rains hard or when the snow melts.
Can the existing axle load be changed to 27 tons?
Yes, it can. A change to 32 tons could be difficult as that is appropriate to heavy-haul railways, which is not what we have. Ulaanbaatar Railway has an axle load of 25 tons, but as everything there is so old, it is kept at 23 tons.
We plan to use P-65 size rails in what will be built. These need between 1600 and 1800 sleepers per km, depending on how much space we want between them. If axle load is changed to 27 tons, load bearing capacity will go up by 25 percent, while costs will go up only 5-6 percent. Double lines are not planned at present, but any future expansion may seriously disrupt existing traffic.
In 5 years, we hope to export 55 million tons of coal from ErdenesTavan Tolgoi and Ukhaa Khudag. The railway capacity has been kept at 30 mtpa. Is this enough?
It will certainly decrease the competitiveness of our coal. Much time would be lost and coal for loading will pile up.
Then why is the Tavan Tolgoi-Gashuunsukhait railway capacity not being raised to 50 mtpa?
The present estimates are that 60 million tons of coal would be produced and half of that is to be transported to the Sainshand complex, only the rest is to go to Gashuunsukhait. The thinking is that 30 mtpa is adequate for this.
Ya.Batsuuri, the overburdened CEO of Erdenes TT, has different figures in mind. He says the output of two mines would be 30 million tons of coal, and Energy Resources will add 15 million tons more. Of this total, he says, only 10 million tons will go to the Sainshand complex. If this figure is correct, the railway to Sainshand will not make a profit. Ulaanbaatar Railway carries 18 million tons of cargo and yet cannot make a profit. There is no economic sense in having a Tavan Tolgoi-Sainshand railway if it ends up transporting less than 20 million tons.One opinion is that the loss here will be adjusted against the profits the Tavan Tolgoi-Gashuunsukhait railway is certain to make because of its high volume.
The financial situation in Erdenes Tavan Tolgoi is critical. It is not certain when the Sainshand complex will be completed and consequently, it needs to sell more coal elsewhere, say, China.How can the coal be moved from the mine until the railway is ready?
Most likely, a paved road from the mine to the border will be built next to the one of Energy Resources. The Tavan Tolgoi-Gashuunsukhait railway will be ready in 2015, and will ultimately transport 20 million tons in a year.
Even if 10 mtpa is transported in the year after work on the railway is completed, it should be possible to distribute dividends to shareholders, in this case, all Mongolians. Another buyer like Chalco has to be found who can lend $200 million adjustable against future sales. Incidentally, the Chalco agreement says all the coal will be transported by heavy load truck.It will be the same again if we don’t have the wagons with the railway ready. This will be true on China’s part, too.
Which port of China is the most suitable for us, in terms of distance, time, and cost?
I think it will be Jinzhou. Its loading capacity is over 100 mtpa and it is well connected to the Chinese railway network. This is the port presented to former Premier S.Bayar when he visited China.
How do Chinese and Russian ports compare in terms of transit tariff and time?
It takes $38 to carry a ton of coal from Tavan Tolgoi to Choir. It takes $100 per day to rent a wagon in Russia. It takes 14 days to go and come back. Russia has said it will not charge for the empty wagon, but it will still be $700 to reach the Russian port. However, these are rough estimates and costs would come down once we build a railway to the Russian border, and the Russian offer of discount rates become effective.
If Mongolia has enough wagons of its own, we could take them to Vladivostok, saving considerably on the wagon use cost. Right now,coking coal price at Vladivostok is $220 per ton, so if we can keep transport costs to $100, our actual coal will fetch $120 a ton. If we can sell washed coal to China for $140, it will make no sense to carry coal to a Russian port. That becomes profitable only when the price rises to $280, and that is possible only if Australian coal supply is badly hit.
Efficient coal export requires us to have between 5,000 and 10,000 wagons. Export terms could very well be that coal wagons have to return empty and also that they can be unloaded only at the port of sale.
And how much would it take to use Chinese ports?
There are all sorts of expenses, from rent for wagon to Terminal use fees to freight forwarding charges etc. Then there is China’s import tax. Tentatively, total cost from our border to Chinese port would be $120, including tax.
Does Russia also have a tax?
No, it doesn’t. The railway transportation cost has no tax in it and, besides, there would be some discount for us, but this is their prerogative.
How is Ulaanbaatar Railway doing? Does it any longer have the capacity to offer standard service nationally?
It cannot go for upgrading of equipment and technology as decisions are made at a political level. Political figures do not also want independent-minded people, no matter how professionally competent they may be. If anybody is actually interested in improving the railway services, the first thing needed is fresh investment. The Russians are dead set against allowing Mongolia to own 51 per cent of this JV.Ulaanbaatar Railway will lose all importance if something like $125 million is not immediately spent on its improvement. But if such money does come, it must not be spent on clearing its debts, which presently total around $150 million.
It surprises me that even now there are people who are very keen to become its head. Employees would perhaps like as head a man with strong political connections, in the hope that he will bring in funds and also help get 51 percent ownership for Mongolia.
Russia hasn’t given the promised $125 million but has, instead, given 37 locomotives. Its immediate priority is to get a Russian railway connected to the Ulaanbaatar Railway network through Artssuuri-Khuvsgul. That would increase its coal cargo volume by 10-20 million tons.
I know that Ulaanbaatar Railway has considered upgrading technology and equipment in several areas but everything gets more difficult and more expensive with each delay and so there is no end in sight of the bad days into which what was once a national icon has now fallen.
What are the first things that crop up when Mongolia discusses building of the railway with its two neighbours?
Russia has made it clear it will build the railway only if it is allowed to operate the Tavan Tolgoi deposit. So we have nothing more to say. China is always ready to make a deal but it wants to know for certain what gauge width Mongolia wants.
Tell us about the Mongolian Railway Engineering Association.
All its members are professional people. In the last 50-60 years, some 2,000 Mongolians have graduated from the State Railway University in either Leningrad or Moscow. As alumni of these historic universities, we felt we should have a permanent place to share memories and experiences and that led to the formation of the association.
We are proud of our skills and qualifications and so are legitimately suspicious of the number of foreign companies who have been promising to build a railway in Mongolia. When a company known only for its work of operating mines says it can build railways or bridges, we would like to have some evidence corroborating their claims of competence.
Too many new companies set up business in Mongolia with an eye on some railway-related contract. Our association is planning to set up aproper database of such adventurers. If a Chinese company says we can build a bridge here, we want them to hold a certificate from a related Chinese Ministry or a professional body. We shall register them in our database only after we are satisfied about their credentials. This database willbe open to all with a legitimate enquiry.