Negotiations succeed to agree the railway border crossing point

2021-12-27

For a landlocked country, railways are a most important strategic infrastructure to export minerals. At the Cabinet meeting on 17 November 2021, the point of intersection of Gashuunsukhait-Gantsmod railway was determined. MMJ spoke to N. Udaanjargal, CEO of Tavan Tolgoi Railway LLC on the long-awaited agreement and the construction of the railway.

The Government announced that the railway crossing point at Gashuunsukhait-Gantsmod border has been finally identified. Where is the location of the junction?

-It’s a long story, so let’s talk a little bit about the history. Mongolia has only one railway crossing with its southern neighbor. In the case of this Zamyn-Uud port, an agreement was first reached in 1952, the railway was completed in 1955, and trains started moving in 1956. The broad gauge railway from the Mongolian side continued on to Chinese territory and the shipments were unloaded in Jining city. Thirty-seven years later, in 1994, a narrow-gauge train park was built and a railway logistics center was established in Mongolia. Cargos from China were now unloaded and transferred in Zamyn-Uud.

People think that broad- and narrowgauge standards are the main reason it took a long time to agree on the intersection point. No, that is not correct. Railway border crossings are negotiated through diplomatic channels. The GashuunsukhaitGantsmod railway crossing is the second crossing of Mongolia’s railways into China and can be considered a historic event. The Chinese side announced their policy to determine the railway intersection point between Gantsmod and Gashuunsukhait very early. In this context, a representative office of China Energy, Shenhua was established in Mongolia 20 years ago in 2001. The representative office introduced their proposals to purchase and transport our coal through Gashuunsukhait by railway. Since then, the two presidents discussed the issue in 2014. There were numerous other Government meetings, and the two sides discussed the point of intersection many times. During the past 7-8 years, the discussion around the intersection point intensified. As a result of continuous negotiations, the railway crossing point was finally agreed. The Chinese side demanded that both sides build railway facilities on their respective territories. In other words, China built about 120 km of railway from the Inner Mongolia Central Railway network in 2016 to the Mongolian border, and established a border railway station at the Gantsmod border point. The Mongolian side needed to build a railway from the Tavan Tolgoi deposit to the Gashuunsukhait port and establish a railway station at the border point. We are currently building a 240 km long railway with two stations and six junctions from Tavantolgoi to Gashuunsukhait. The combined length of the railway is 313 km. This work is expected to be finished next year. We also need to build 7-10 km of railway connecting the two border crossings. The construction is expected to finish in July next year. The connection between Gashuunsukhait and Gantsmod stations has been agreed as the intersection point.

How much will it cost to build a station at the intersection? And where does this money come from?

Three coal mining companies and the recipient party including the Government of Mongolia, Shenhua Group, Energy Resources and Tavan Tolgoi, both large and small, partnered to establish the Gashuunsukhait Railway Company and conducted a feasibility study. The feasibility study results were also accepted by the Ministry of Roads and Transportation. We can use this study right away.

How is the issue of the narrow and wide gauge of the railway addressed?

 I would like to reiterate that there were no problems or delays in construction due to the different gauges. Despite different gauges, transportation services still continue in Zamiin-Uud. In short, the solution will be the same as in Zamiin-Uud and there is no difference in technology, too.

Can we assume that it is not yet clear how to organize the transfer of coal and other loads?

-If the broad gauge railway is extended into China and the Chinese side builds a railway park there, it would benefit both sides. Even after the completion of the facility construction, issues such as the amount of freight for the year will be agreed between Tavan Tolgoi Railway LLC and the Inner Mongolia Railway and follow the Zamiin-Uud model. Initially, China offered to buy at least 20 million tons of coal per year through the railway. Three rounds of negotiations took place with the government informed about progress at each round. Finally the negotiations produced a positive result. In the future, the border crossing process at Khangi-Mandal, BichigtZuunkhatavch and Shiveekhuren-Ceke border points would be similar to that at Gantsmod.

How much does it cost to build a cross-border facility at an intersection? Will China participate in the construction process?

The two sides will discuss the construction of a cross-border facility, as it is different from the construction of a railway.

Both governments authorized their relevant organizations to manage this process and provided guidelines. Tavan Tolgoi Railway LLC from Mongolia and China Energy from China will now be working together. The negotiations are taking place in line with government instructions.

Depending on where the transloading occurs, a cross-border facility will be constructed. The bridge over the river connecting China and Russia was built with double gauges letting trains from both sides freely move across the border. If a narrow gauge railway comes into Mongolia, Mongolia will build a logistics center, and if a wide gauge railway is extended into China, a logistics business will be established there. Both are interested in establishing the park on their territory. If we build the narrow gauge railway on our side, we will have to do it at our own expense. If we extend the railway into China, it means that the raw materials will go directly to China and get unloaded. If we bring the narrow gauge to Mongolia, we will create jobs here. We can also establish a coal market with a logistics center at the Mongolian border.

Also, with the commissioning of this railway, it will be possible to send Russian cargo from the Altanbulag border point to China through Zuunbayan and Gashuunsukhait. The two sides must agree on the types of cargo to be transported and the shipping regulations.

Depending on the location of the transshipment facility, one of the sides will probably invest more. There is no need to wait for China to invest. It is not going to be a big issue to build a cross-border facility. We can build things on Mongolian territory with our own funds.

As understood, it is not possible to say how much money is needed to build the cross-border facility. But if Mongolia finances the construction of this facility, where will this money come from?

It is not possible to say at this time. This is because the construction at the Mongolian side will have one cost estimation and the Chinese side will have another estimate. Depending on the location of the coal loading facility, this amount will change. Shenhua Group conducted a feasibility study of this facility. Depending on which side is the trans-shipment facility built, it will be clear how much investment is needed and who will fund it. So it is too early to indicate the amount now. Once both parties clarify these issues, appropriate information will be provided.

Using the railway will reduce transportation cost and provide the mine with value-added revenue from transportation. It is possible to earn 1.5 times more than the current income by selling coal at the border price, not at the value at the mine gate. The investor, Erdenes Tavan Tolgoi, will be able to recoup its costs in 2-2.5 years by only selling coal through Gashuunsukhait. The cost of rail construction will be recovered in 17 years. But it doesn’t mean that it will be unprofitable in those years, it will be profitable. After 17 years, Mongolia will receive 100% of the profit in 83 years.

When will the railway be fully operational and start transporting coal?

The construction of the railway will be finished in July 2022 and pilot transportation will begin.

-Any challenges encountered during the construction of the railway?

We faced challenges such as dust storms, sand movements, floods, cold weather, and COVID-19, but were able to overcome them. Now the biggest problem is politics. Difficulties start when politicians start talking about a railway. So if politicians stop interfering in this project, the construction will proceed normally and finish on time.

Renchindulam

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