WORLD BANK
Southern Mongolia Infrastructure
Land Transport Infrastructure to Support
Mining Development
DRAFT
BULLPIN CONSULTING LTD
JULY 2008
TABLE OF CONTENTS
SUMMARY
1.
INTRODUCTION
14
2.
TRANSPORT SECTOR IN MONGOLIA
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2.1
INSTITUTIONAL STRUCTURE
2.2
ROAD SECTOR
2.2.1
Road legislation and finance
2.2.2
Infrastructure
2.2.3
Transport operations
2.3
RAIL SECTOR
2.3.1
1949 agreement
2.3.2
Rail Transport Law
2.3.3
Infrastructure
2.3.4
Transport operations
3.
SOUTHERN GOBI DEVELOPMENT PLANS
3.1
INTRODUCTION
3.2
OVERVIEW
3.2.1
Coal
3.2.2
Other minerals
3.3
KEY MINING DEVELOPMENTS IN SOUTH GOBI
3.3.1
Overview
3.3.2
Timing
3.4
SECONDARY DEVELOPMENT
3.5
FUTURE TRANSPORT DEMAND
4.
SECTOR DEVELOPMENT PLANS
4.1
INTRODUCTION
4.2
ROAD MASTER PLAN
4.3
RAIL INFRASTRUCTURE PLAN
4.3.1
Millennium Challenge
4.3.2
Infrastructure upgrading and new construction
5.
ADJACENT NETWORKS
5.1
INTRODUCTION
5.2
CHINESE NETWORK
5.2.1
Overview of the regional rail network
5.2.2
Chinese railway development plans
5.2.3
Chinese port development plans
5.2.4
Handling constraints at border crossings
5.2.5
Operational considerations
5.3
RUSSIAN NETWORK
5.3.1
Overview of the regional rail network
5.3.2
Potential bottlenecks and constraints for sea-borne exports
5.3.3
Russian development plans
5.3.4
Handling constraints at border crossings and ports
5.3.5
Operational considerations
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6.
7.
INFRASTRUCTURE OPTIONS
6.1
INTRODUCTION
6.2
ROAD
6.3
RAIL
6.3.1
Route options
6.3.2
Gauge
6.3.3
Intermodal options
6.3.4
Constraints on existing network and transhipment points
6.3.5
Rollingstock availability
6.3.6
Estimated rail capital and operating costs
6.3.7
Analysis of route options
6.3.8
Identification of preferred routes and timing
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PRIVATE INVESTMENT IN MINERAL TRANSPORT
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7.1
INTRODUCTION
7.2
OPTIONS
7.3
RAIL NETWORKS AND ACCESS
7.3.1
Accreditation, Licensing and Safety
7.3.2
Capacity Allocation and Network Management
7.3.3
Charging structures
7.4
ENCOURAGEMENT OF TPOs
7.5
OTHER ISSUES
7.6
POTENTIAL FOR PSP IN SOUTH GOBI
8.
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TRANSPORT INFRASTRUCTURE DECISION FRAMEWORK
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WORLD BANK
LAND TRANSPORT INFRASTRUCTURE
SOUTH MONGOLIA INFRASTRUCTURE
DRAFT
SUMMARY
This report describes the options, and their associated costs and benefits, for developing land
transport infrastructure and services to support the development of key mines in Southern
Mongolia. It discusses the potential for private-sector investment in infrastructure and
develops a decision framework for infrastructure development in the region.
Future demand for transport
There are at least eight major coal and mineral projects in the South Gobi which are expected
to come into production in the next five years or so; these are mostly coal mines but also
including one of the largest copper deposits in the world. This will be accompanied by an
increase in population and the development of associated urban centres. Together, there will
be a substantial increase in the demand for transport, both to transport mineral production to
markets and to provide goods and services to the local population and industry.
The principal economic driver of new rail construction will be the coal flows. Whilst the base
metal mines have the capacity to earn large amounts of revenue, the volume of freight they
generate is relatively limited and, even for Oyu Tolgoi, would be unable to justify significant
new rail construction, whilst a regional population of less than 100,000 would likewise be
much more economically served by truck and bus rather than a new railway.
The scale of the coal reserves is such that future transport volumes will largely be determined
by demand, especially from northern China, rather than being constrained by availability of
supply. The forecast increase in Chinese steel production will lead to continued growth in
coking coal demand and Mongolia has rapidly become the most important external supplier, a
position it will probably maintain into the long-term.
Exporting through either Russia or China to third countries is less certain. The
competitiveness of Mongolian coal in the North Asian markets will critically depend on the
cost and availability of rail transport to either Russian or Chinese ports; coking coal will
probably be able to bear this cost but exports of thermal coal will be difficult, especially so
through Russian ports at current rail tariffs. The most likely scenario may be for Mongolian
coking coal to displace Chinese supplies from mines further towards the coast which are then
freed up for local export to Japan and South Korea.
As China currently imports the equivalent of about 10 million tonnes of concentrate, Oyu
Tolgoi should thus be able to readily export its entire production of copper concentrates
(around 2 million tonnes p.a.) for the foreseeable future. Whilst this traffic would not justify a
rail line by itself, it will almost certainly move by rail if a rail line exists.
Overall, it is likely that Mongolia will export around 25 million tonnes of minerals by 2015,
of which possibly 10 million tonnes will be exported overseas, probably through a Chinese
port. In the longer term, these volumes could double.
The mine inputs of supplies and fuel are generally an order of magnitude smaller than the
mine output unless there is a smelter attached to the mine and, with the exception of fuel, are
generally not well suited to rail transport. In comparable situations, mining supplies are
generally collected from a number of suppliers and delivered as a mixed load by road as long
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as there is road access. These inputs therefore will rarely be a deciding factor as to whether or
not a railway is constructed. In addition to the mines themselves, there will be demand for
passenger and freight transport from the settlements in South Gobi. However, again this is
unlikely to be significant in terms of deciding whether or not a line is built and most, if not all
of this traffic is likely to be transported by road.
Infrastructure Plans in South Gobi
The objectives for the road sub-sector in the National Development Policy formulated by the
GOM in 2005 include the continuing development and improvement of the corridors linking
to the international highways, constructing the three Asian Highways and continuing the
periodic maintenance of state highways and local roads. Achieving these objectives was
addressed in more detail by a Road Masterplan prepared in 2007; this aims to provide a sealed
road between Ulaanbaatar and each aimag centre as well as connecting the international
network with the national roads serving the five economic regions of Mongolia.
Within South Gobi, there are plans to construct or reconstruct sealed roads between
Ulaanbaatar and Dalanzadgad via Mandalgovi as well as roads linking Ovoot Tolgoi and
Dalanzadgad (via Tavan Tolgoi and Oyu Tolgoi) with the Chinese border. However, the
masterplan does not include any projects connecting Dalanzadgad towards the east and the
Trans-Mongolian Highway
The Mongolian rail network (MTZ) is of Russian gauge and has been constructed to Russian
standards. Although it is being upgraded, this is along-term project and the network is in
generally poor condition with limited remaining capacity on its north-south mainline. MTZ
has a dual ownership structure, with equal shares held by the Mongolian and Russian
governments, and this has created considerable difficulty in terms of agreeing an investment
and upgrading plan.
In 2007, the Millennium Challenge Corporation (MCC) provided a grant of US$ 188 million
to GOM for rail investments. This includes funds for rollingstock which will be owned by a
new leasing company which will lease them on commercial terms to MTZ and independent
shippers, thus providing the start of private-operator access to the rail network. The grant
does not include any infrastructure component other than new signalling equipment and this
will need to be addressed if significant volumes of minerals are to be exported on any routes
other than the cross-border lines to China.
A number of new lines have been proposed at various times, some of which are more likely
than others; most will be built only if there are major mining developments which generate
substantial export quantities of coal. Cross-border links to China from Tavan Tolgoi and
Ovoot Tolgoi are likely to be the first built, followed by a link from the South Gobi to the
main Trans-Mongolian Railway (TMR) when it is justified by demand.
Neighbouring rail networks
Exports of minerals from Mongolia depend critically on the capacity and charges on the
neighbouring rail networks in China and Russia.
China
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China’s rail network is extensive but also highly congested and there is very little spare
capacity on key routes, especially those crossing the mountains which run north-south west of
a line between Beijing and Guangdong. Coal is about 40 per cent of the traffic carried on
China’s railways and its strong growth in recent years is forecast to continue for at least the
next decade, thus being the single most important factor affecting network capacity. The
major coalfields are all located west of the mountains and over 700 million tonnes is carried
each year, mostly by rail, from these to the eastern and southern provinces, either directly or
by coastal shipping from the northern ports.
Nine railway lines, forming three groups, currently cross the mountains separating these fields
from the coastal plain. Two of these lines, the Daqin line and the privately-owned and
operated Shenshuohuang line, are specialist heavy-haul lines, with a combined capacity of
around 600 million tonnes. Coal shipments from the main western coalbases were forecast to
more than double by 2020 compared to 2006 and the railway Medium and Long-term
Development Plan (MLTDP) prepared in 2004 places considerable emphasis on expanding
coal transport capacity. The increase in rail capacity is complemented by expansion plans for
the seven main coal ports on the east coast (including the construction of a new port at
Caofeidian, a sub-port of Tangshan) which are expected to increase their capacity by 60% by
2010 compared to 2005.
In addition to increasing rail capacity across the mountains, China plans to build several other
lines to carry minerals from Mongolia. A line between Hami and Linhe is currently under
construction as far as Ceke; this acts as a collector line for traffic feeding in from South Gobi
by road or rail. Four feeder lines are planned to carry traffic from railheads on the ChinaMongolian border between the current crossing at Zamyn Uud and Urumqi in the west. A
major new line is also being constructed to carry coal from Nei Monggol to Liaoning; this is
planned to subsequently be extended across the border to Choibalsan in Mongolia to provide a
third trunk route between northern China and Russia. These lines are constructed, at least
initially, as single lines, with a capacity of about 20-25 million tonnes and could typically be
built within 18 months – 2 years of being approved. Most of them are likely to be built as
either joint venture lines, with the financing shared between the central Government,
provinces and potential customers, or as purely private lines.
The difference in gauges between the Chinese and Mongolian systems currently requires
traffic to be transhipped at the border. This is a time-consuming process as, although the
physical transhipment itself is generally not a problem, it does require adequate supplies of
wagons on either side of the border as well as negotiating customs requirements. The short
cross-border lines are planned as standard-gauge lines, which will avoid the need for such
transhipment; lines to the north and east of the South Gobi, by the same reasoning, would
normally be Russian-gauge.
Although there are several non-China Railways operators currently operating, most of them
do so on their own networks and there are comparatively few private wagons, and almost no
private locomotives, operating on the Chinese network. The concept of a Mongolian-owned
train, with Mongolian locomotive and wagons, operating through to the Chinese mainline
network, is thus some way off. China Railways has actively discouraged privately-owned
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wagons for some years and, as yet, there are also no formal arrangements whereby a third
party can pay access charges to operate over the main CR network. The normal arrangement
is that traffic is carried in CR wagons; whilst they are on non-CR lines, a standard charge is
made per day; whilst they are on CR lines the normal CR tariff applies.
An important consideration with the Chinese network is obtaining a reliable long-term
capacity allocation. Currently, there is an annual convention at which the available capacity
(which is constrained on most of the east-west routes) is allocated to users, and on which
MOR’s annual transportation plan is then based. If a particular shipper fails to obtain an
allocation, he can apply to the relevant railway authority for a non-plan allocation but this is
not guaranteed and is also subject to change if circumstances change. For this reason, using
the privately-owned Shenhua line may be an attractive long-term option for Mongolian
shippers, especially as Shenhua produces very little coking coal itself and thus is not a direct
competitor.
Chinese rail tariffs are controlled by national and provincial pricing authorities and are
generally set to achieve cost-recovery; they thus vary between different lines. Coal traffic on
the main network is typically charged around US$ .015 per net tonne-km (ntkm), with rates
on other lines of up to US$ .026 per ntkm. Indicative rates from the Mongolian border to
Qinhuangdao, the main coal port, are $US 25.00 from Gashuun Sukhait and $US 18.00 from
Erlian.
Russia
The Russian rail network connecting to Mongolia is much simpler, essentially consisting of
the Trans-Siberian Railway (TSR) linking the Mongolian network to the Far East ports. The
TSR is a double-track electrified railway which is reportedly currently carrying about half its
capacity. Unlike the Chinese network, therefore, line capacity is not a significant issue for
Mongolian mineral exports. However, there are likely to be significant potential tariff and
access barriers.
The two main coal terminals are at Vanino and Vostochnoy. Both are privately-owned, either
wholly or partly by mining interests. Russian policy is that all terminals should be Russianowned; they key issue in Russian ports is thus the ownership of terminals and the extent to
which Mongolian coal would get access at times of either limited port capacity or when
Mongolian coal was competing with Russian producers for the same markets.
The Russian rail network is open to third parties and shippers have been able to operate their
own trains, supply their own wagons or continue to rely on the Russian railways (RZD).
During this period, a number of third-party operators have emerged, some of whom are the
transport arms of major industrial organisations but others of which are genuinely
independent transport specialists. Any Mongolian exporter could thus use one of these
operators. However, Russian access charges remain commodity-based and tariffs for transit
coal are two-three times higher than those for domestic coal which is being exported; the
current charges for export coal from Naushki to Vostochnoy are $85/tonne, pricing thermal
coal out of the market and probably a major barrier for coking coal in the long-term.
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Infrastructure options in the South Gobi
The road networks that have been proposed in South Gobi are consistent with the RMP
network but also include a connection between Oyu Tolgoi and Sainshand, serving Tsagaan
Suvarga en route) as well as a cut-off connecting Tavan Tolgoi directly with the Dalanzadgad
– Ulaanbaatar road. No proposals have yet been made for a link between Ovoot Tolgoi/Nariin
Sukhait and the aimag centre at Dalanzadgad; instead Nariin Sukhait is linked to Arvaikheer
as part of a north-south vertical road.
Both the roads from the mines to the Chinese border are expected to be financed by the mines,
with fees then being levied for their use by third parties that are used to partially defray the
cost of construction and/or maintenance.
The possible rail lines that have been presented at various times fall into three groups:
•
Cross-border lines from Ovoot Tolgoi to Ceke and from Tavan Tolgoi and Oyu
Tolgoi to Gashuun Sukhait
•
A line from Ovoot Tolgoi through Dalanzadgad to Tavan Tolgoi which connects
these two
•
•
Connections from the Tavan Tolgoi/Oyu Tolgoi area to the main TMR; these include:
o
From Tavan Tolgoi direct to Ulaanbaatar via Mandalgovi; this would provide
the most direct route to the north and Russia as well as providing a reasonable
service for non-mine traffic to and from the capital
o
From Tavan Tolgoi to the TMR in the vicinity of Airag; this is the shortest
route to the TMR but involves a longer distance for traffic heading north
o
From Oyu Tolgoi to Zuunbayan and from there on the existing branch to
Sainshand on the TMR. This involves even less new construction, although
the Zuunbayan branch would probably have to be reconstructed.
o
In addition, this analysis has considered an additional route direct from Tavan
Tolgoi to Sainshand which avoids the detour via Oyu Tolgoi.
Any of the last three routes would also fit with any longer-term development of a new
route to the Russian ports via Choibalsan and the border crossing at Ereentsav.
The cost of constructing a new railway varies significantly, depending on the terrain and the
standard of the track being constructed. Construction costs in China, the closest parallel to the
South Gobi, vary from a minimum of under $1 million per route-km for a single-track
minimum-standard railway in easy terrain to over $10 million per route-km for a double-track
medium-high speed line in mountainous terrain. A line capable of carrying 25 million tonnes
of minerals a year in moderate terrain such as the South Gobi, would normally be constructed
as a Class I railway in China, with a ruling grade of 0.6 – 1.3%. The cost of such lines in the
South Gobi is estimated at about $1.8-2.0 million per route-km, depending on the terrain and
volume of earthworks.
Operating costs likewise depend on the standard of the line (in particular the axle-load) and
the terrain (which affects the tonnes per train and per locomotive). The two most modern and
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efficient mineral lines in China, the Daqin and Shenhua heavy-haul lines, had operating costs
in 2007 of just under 0.008 $US/ntkm (including depreciation) while the average cost on the
CR network for all freight operations in 2006 is estimated at $US0.0093/ntkm, excluding
depreciation. A figure of $US0.01/ntkm, including depreciation, has been used in this
analysis, but in practice costs could range between $0.009-0.012/ntkm.
Connections to mines
When a mine is commencing production at a low level, production is normally carried by
truck to a railhead, as currently happens at both Tavantolgoi and Nariin Sukhait. Where this
does not adversely affect the local population or the environment, this is generally the most
economical method of transport for tonnages up to around 4 million tonnes, although the
precise level will depend on individual circumstances. Typical breakeven tonnages under
Mongolian conditions for a mine to build its own rail connection range between 3 and 8
million tonnes; given the forecast outputs, the mine at Tavan Tolgoi justifies a rail connection
under any circumstances, as would the adjacent Baruun Navan. Those at Ovoot Tolgoi and
the adjacent Sumbar in the west also would probably justify a rail connection; if this is
constructed to the south, then it could also serve Nariin Sukhait. Oyu Tolgoi would be
unlikely to justify a rail link by itself but would be served by a line from Tavan Tolgoi to the
south. However, Tsagaan Tolgoi and (even more) Tsagaan Suvarga are marginal cases at best
and would probably transport by road to a suitable railhead unless other factors became
significant.
Ovoot Tolgoi – Tavan Tolgoi
The case for a connection between these two lines via Dalanzadgad is less clear. Mining
inputs alone would not require a connection from the north to Ovoot Tolgoi. Its justification
therefore depends on whether the Ovoot Tolgoi mines wish to have an alternative outlet for
their coal, either via Gashuun Sukhait and Baotou or via Russian ports.
The route to China from Ovoot Tolgoi via Tavan Tolgoi is longer by about 130 kilometres but
is cheaper by about Rmb 10/tonne, excluding the cost of constructing the line. At a discount
rate of 10%, this saving requires a volume of around 50 million tonnes before it becomes
worthwhile and the only justification for the line would then be the option of using the
Russian ports.
Connections from Tavan Tolgoi to TMR
The principal purpose in constructing one or more of the routes between Tavan Tolgoi and the
TMR is likewise to provide an alternative export route to Russia or China or both. For
southbound traffic, the routes via the TMR are at least 300 km further than by using the
Gashuun Sukhait crossing point and the Chinese network, require a bogie exchange at the
border, possible duplication of the southern part of the TMR, and also need to negotiate the
heavily congested Chinese network around Datong. It is unlikely that any significant volume
would use a link via the TMR in preference to the Gashuun Sukhait line unless the tariffs on
the Mongolian network were exceptionally low and the principal justification for these
connections is thus their usefulness for exports via Russia, always remembering that such
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exports are only viable as long as the fob price of coking coal at the ports remains high
enough to cover the land transport cost of around $100/tonne.
For northbound traffics, the direct line to Ulaan Bataar is the shortest, being 200-400
kilometres shorter than the other options; it is also consistently the cheapest option for
northbound exports, as its higher construction cost is outweighed by the need for less
upgrading of the TMR and the much shorter distance with its lower operating costs.
The land transport cost to the Chinese ports is about $70/tonne cheaper than via the Russian
ports and exporting via a Chinese port would therefore generally always be the first choice.
The route via Gashuun Sukhait is the cheapest southern route by around $10/tonne (for an
export volume of 10 million tonnes), reducing to $4/tonne if exports reach 20 million tonnes
p.a. The two Sainshand options have lower costs than the Airag route as they join the TMR
further south, while the Ulaan Bataar line unsurprisingly has a high cost penalty for exports to
China.
The optimum choice of route to access the TMR thus depends on the direction in which the
exports are expected to flow; predominantly northbound flows will favour the more northerly
options whilst the converse is true for southbound exports. However, for these latter, the
Gashuun Sukhait route is so superior that it is unlikely a significant volume would use the
TMR unless there were exceptional circumstances.
East-west route via Choibalsan
A final option is a cross-country route, which extends the Airag route to use the existing 60kilometre Borondor branch and then build a new line to Choibalsan. From there, traffic can
use the existing line (which would need to be rebuilt) to access the Russian network at
Solovievsk and subsequently join the Trans-Siberian Railway. Unfortunately, this route only
saves 200 kilometres compared to using the TMR from Airag to Ulan Ude (and only 30
kilometres if the Ulaanbaatar line is constructed), as the route from Solovievsk to the TSR
runs generally north-west
Because of the small distance saving, the Choibalsan route from Airag only becomes justified
economically when volumes reach 30 million tonnes p.a. and, even then, the Ulaanbaatar
route remains cheaper.
Summary
Whilst the cross-border routes to China are likely to be viable at around 5 million tonnes p.a.,
extending the network to connect to the TMR needs to wait until the export potential for
Mongolian coal is clearer. It seems unlikely that any significant volume of exports to China
will use the TMR via Erlian unless the line is built for other reasons but most other
developments in the Tavan Tolgoi – TMR corridors are metal mines generating comparatively
low volumes of product which would normally be transported by road to an existing railhead.
Whichever route is constructed, it will be better for some exports flows than others. If exports
via Russia can be guaranteed and it is agreed all exports to China will use the cross-border
lines, then the Ulaan Bataar route is the best but if it is required to keep options open then an
alternative approach may be needed in which the route which gives the least penalty for a mix
of traffics. If equal volumes of exports are assumed in the two directions, the Airag and direct
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Sainshand options are better than either of the extreme north and south connections
(Sainshand via Oyu Tolgoi and Ulaanbaatar). However, the Airag route is the more robust as,
whilst it is never the best option for either direction, it is also always within about $2/tonne of
the lowest cost for either direction, a small penalty compared to the total cost of transport to
the ports. It also provides the opportunity for future extension to Choibalsan should traffic
volumes expand or if the network structure develops to provide a more direct link to the TSR.
Whilst this analysis is adequate at a strategic level, practical route selection will also need to
take into account any engineering features of these lines, including any differences between
the various options in construction costs and operating conditions and unit costs.
The distance to ports of Mongolian exports leave them very vulnerable to changes in world
prices or to unilateral changes in rail tariffs in Russia and China and long-term contracts
covering not only the end-user, but also port and rail access in China or Russia, would be
required before any substantial new construction would be justified, or attractive to private
investment.
While the cross-border lines are planned as standard-gauge lines, it is likely that most of the
traffic using the connections to TMR will be to or from the north and these lines should
therefore be broad-gauge. If the Airag route is selected, Oyu Tolgoi will not have a broadgauge connection but it seems unlikely much concentrate traffic would move north and any
that does could be transported by road to a railhead at Tavan Tolgoi.
Private investment in mineral railways
General considerations
The private sector can be involved in the construction and operation of railway lines in many
different ways: through infrastructure construction, infrastructure operation (i.e. signalling
and train control), rollingstock provision and train operation. There are five basic types of
concession:
•
Train availability contract, where rolling-stock is provided by a third party (who also
normally also does the scheduled maintenance). These enable capital expenditure to be
spread over the life of the asset, as well as guaranteeing rollingstock availability and
reliability.
•
Train operating concession, in which operators either pay Government (or are paid by
Government) to operate specific services. Such operators pay access charges (normally a
combination of a rate per train-kilometre and a rate per gross tonne-kilometre) to the
infrastructure provider. In some cases, and this is the normal situation for freight, there is
‘open access’, i.e. an operator can operate trains without any financial payment to or from
Government by complying with technical standards and paying access charges
•
Infrastructure concession – where an organisation undertakes to build infrastructure
which is then leased to Government (either directly or to a Government-owned railway)
for an annual lease fee. This arrangement avoids Government having to make a large
initial capital expenditure and also greatly reduces Government’s risk of project over-runs
and delays.
•
Infrastructure build and operate concession – where an organisation both builds the
infrastructure and ‘operates’ it (i.e. provides train control and supervises train operations),
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similar to the arrangements used for toll-roads. One example of such an arrangement is a
current proposal for a new mining development in Australia.
•
Integrated concession in which a company is given the right to build and operate a
railway, normally for a defined time period (historically 50 or 100 years) subject to
certain conditions such as tariff control, service obligations or (on the Government side) a
dividend guarantee.
There are a number of variations on these basic models; for example, a line can be financed
by a mine developer, even if it is built and operated by the public sector, with the cost of the
line being offset against freight revenue received from the mine.
A fundamental distinction is that between a railway built by an individual company (or
companies) on which they transport their own products as part of an overall logistic chain and
railways which third parties can use – either using and operating their own rollingstock or
using services provided by railway operator. Many of the new railways constructed in the last
fifty years have been of the first type, typically as part of an integrated mine-rail-port project.
They are effectively private railways with no obligations to provide a service for third parties,
although there is often some informal passenger transport.
However, in other cases, the railways have either been explicitly built to carry third-party
freight or it is an obligation imposed by the Government as part of the permission to construct
the railway, in order to ensure that smaller mines that cannot justify building a railway line on
their own account can be provided with access at a reasonable price. A key decision for
Government when granting a rail concession is therefore whether the line is to be commonuser and, if so, what arrangements are proposed for this to be enforced in practice as well as in
theory.
There are three broad streams of work associated with administering such a rail network with
multiple users:
•
•
•
Accreditation, licensing and safety
Establishing the procedures for capacity allocation and network management
Establishing the charging framework and prices
Each of these streams of work has two phases:
• Defining the principles to be adopted
• Developing the procedures by which they will be implemented
These are normally summarised for third party operators (TPOs) in a document which in
Europe is known as the ‘network statement’.
Even though the regulatory and operational obstacles for TPOs may be overcome, they may
still face difficulties in obtaining rollingstock. Most rail rollingstock has a life of over 20
years, a long period to which to commit given that comparable road vehicles may only be
used for 3-5 years and then easily disposed of through the secondhand market. A key element
in countries where TPOs have flourished has been the existence of third-party rollingstock
which can be leased or hired for periods of one or two years. In some countries this has been
through specialist leasing companies; in others from other railways. An obvious option in
Mongolia is for TPOs to contract with one of the Russian railway operators for the provision
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of rollingstock or alternatively to develop the leasing company created as part of the
Millennium Challenge project.
Other issues to be considered include whether any line that is constructed by a private
company will eventually revert to the state (either at the end of the mining lease or after some
more general time period) or whether ownership of the line will continue in perpetuity. The
handback arrangements need to be clearly stated in the concession agreement, as well as the
conditions under which the government can step in and takeover if the concessionaire is not
performing as required. This in turn requires a monitoring procedure with is non-intrusive but
observant.
Potential within South Gobi
The potential for PSP in the rail network in South Gobi ranges from very good to negligible.
The most important thing for an investor in infrastructure is the reliability of the traffic
forecasts. The lines linking the proposed mines with the industrial complexes just over the
border in China will be carrying traffic that is subject to long-term contracts. Whilst such
contracts cannot be relied on absolutely, they are the closest thing to certainty that the mines
are going to experience, especially if the industrial complexes themselves have a stake in the
mines. For many of the plants in Gansu and Nei Monggol, Mongolia is the closest and
cheapest source of their inputs and this also provides some reassurance that substantial traffic
volumes can be expected in the long-term.
The lines linking the mines to the existing Mongolian network unfortunately are unlikely to
have any such long-term guarantees. Exporting coal through Russian orts must overcome two
uncertainties: firstly, the inherent uncertainty of the international market and, secondly, the
uncertainty associated with exporting through Russia, which has shown several times in
recent years that it is prepared to use energy as a political weapon. Whilst it may be possible
to interest some local businesses in lines connecting the mines to the existing network, it
seems likely that any such interest would require some guarantees from the government. The
other option is to interest some of the Russian resource companies in the South Gobi mines.
It is important that any lines that are built allow access to third parties at a reasonable rate.
Whilst Tavan Tolgoi is clearly large enough to justify a line in its own right, other mines with
a production capacity of, say, 2-5 million tonnes p.a. will not be and will naturally use road, at
a much higher cost per tonne than if they had access to rail. At the margin, this will mean that
if small potential mines adjacent to existing lines cannot obtain rail access, they will not be
developed and it is in Mongolia’s national interest to ensure this does not occur.
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Outline decision framework
Issue
Decision
Comments
Determine threshold volumes above
Road access to new
Privately-funded as far which access roads must be sealed to
preserve environment.
mines
as public network
Specify construction standards
Volume limit will depend on level of
Allow up to specified
other usage. Loading should be enforced
Use of public roads for volume subject to
at corporate level. Charges must be
loading standards and
hauling product
sufficient to cover long-run maintenance
charges
and renewal costs
Require access to third parties under
specified conditions. Develop standard
Rail access to new lines Allow
procedures and charging methodology.
Specify handback requirements.
Undertake marketing and operations
study to establish long-term potential for
export to Russia. May require
commercial agreement with RZhD and
Allow if privatelyports to obtain reduced long-term access
financed. Otherwise
and rate for export coal transitting from
Connection to TMR
defer until there is clear
Mongolia. As China appears to currently
evidence of long-term
have $70/tonne advantage, a better
demand
option may be to develop alternative
customers in China; the ownership of the
connecting border lines in China should
be monitored.
Any Government funding should be
restricted to the Tavan Tolgoi –
Connection between
Allow if privatelyDalanzadgad section and only
Ovoot Tolgoi and
funded.
considered after a connection to TMR
Tavan Tolgoi
has been constructed.
Connection to
Monitor progress of proposed Chinese
Long-term option only
Choibalsan
line through Choibalsan
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1. INTRODUCTION
The objective of the report is to identify options, and their associated costs and benefits, for
developing land transport infrastructure and services to support the development of key mines
in Southern Mongolia. This development is dominated in volume terms by several major coal
mines which are either already producing or are planned to do so and the report has therefore
concentrated on the options for the development of a railway network to distribute the mines’
production.
Following this introduction, Chapter 2 summarises the current situation in the land transport
sector in Mongolia, briefly covering the institutional framework and key legislation and then
describing the infrastructure and transport operations in both the road and rail sectors.
Chapter 3 reviews the mining development plans for the Southern Gobi, including the size
and timing of the main mines, to provide a broad estimate of the magnitude of future transport
demand.
Chapter 4 then summarises the current sector development plans, including the Road
Masterplan and the various projects that have been proposed or are in progress for rail.
Because of its landlocked position, Mongolia can only sell directly to two countries, China
and Russia, and for all others is dependent on the transport networks of its two neighbours to
access ports. Chapter 5 describes these networks and their development plans, as well as
discussing operational issues, including network congestion and rail tariffs.
Chapter 6 identifies road and rail development options in the South Gobi. The key road
developments are covered by the Road Masterplan but, for rail, there are a number of options,
particularly for east-west connections to the existing network. This chapter discuses these
options and estimates the capital and operating costs and benefits associated with each one for
the main potential export movements. The options are then compared to identify those which
preferred over a range of traffic volumes.
Chapter 7 discusses the potential for private-sector investment in infrastructure, the
preconditions which are conducive to the investment and the regulatory requirements which
will maximize the associated public benefits.
Finally, Chapter 8 presents a decision framework to help structure the land transport
infrastructure development program.
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2. TRANSPORT SECTOR IN MONGOLIA
2.1 INSTITUTIONAL STRUCTURE
Transport in Mongolia is administered by the Ministry of Roads, Transport and Tourism, with
the day-to-day responsibility with modal departments. The Department of Roads is
responsible for developing and maintaining the state road network, implementing
Government road-related policies, providing road construction and maintenance companies
with professional administration and operational cooperation, and supervising road, bridge
construction and maintenance.
Railways have historically been the responsibility of the “Ulaanbaatar Railway”, a company
jointly-owned by Mongolia and Russia; however, in 2007, a new Railway Law was passed
which established the Mongolian Rail Authority (MRA), which has responsibility for
planning and administering the rail sector, including any new railway companies that may be
established under the Law.
2.2 ROAD SECTOR
2.2.1 Road legislation and finance
The main legislative basis controlling the road sector is the “Law on Roads”, ratified in 1998
by the Mongolian Parliament, and other related acts and regulations. Funding for the
development of state roads and bridges is made partly through a road fund, financed by fuel
taxes, vehicle registration fees, and the state budget but increasingly through direct allocations
from the budget.
2.2.2 Infrastructure
Road Network
There are around 50,000 km of roads in Mongolia, administratively classified into two
categories (Table 2.1)
•
State roads connecting the capital to the provincial (aimag) centres, important towns
and important border crossings; about 1,500 km of these are paved and the remainder are
•
Local roads connecting aimag centres to district (sum) centres, where these are not
connected by State Roads. There are also Internal roads connecting Sum centres to other
population centres and farms and about 460 km of roads within the Ulaan Bataar urban
area.
Table 2.1 Length of road network Mongolia 2005 (km)
State Roads
Paved
Gravel
Improved earth
Earth (tracks)
State
11,219
1,503
1,440
1,346
6,930
15
Local
38,495
758
498
499
36,740
Total
49,714
2,261
1,938
1,845
43,670
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The ‘improved earth’ roads are formed earth tracks but their low levels of maintenance in
recent years have caused them to be effectively abandoned by road users, who often create
new tracks across the steppe.
With only 160,000 vehicles (excluding motorcycles) in the country, the network is lightly
loaded. Only a few of the State roads carry more than 1,000 vehicles per day and most are in
the low hundreds.
Mongolia has an ambitious Road Master Plan, which aims to have around 10,000 km of the
State network paved by 2020, whilst ensuring that 70 percent of the network as a whole is in
‘good’ condition. This plan is estimated to cost around $2 billion at an average rate of about
$140 million p.a. (discussed further in Section 4.2).
2.2.3 Transport operations
Many of the current commercial road vehicles in Mongolia are of Russian origin, which are
robust and easy to maintain, with ready access to spare parts. They are thus well suited to
handle the poor condition of most of the road network, with generally low speeds and high
vehicle wear rates are very high.
There appear to be no regulations as to permissible loads on roads and there is little control on
overloading. As a result, trucks generally, and particularly those associated with the mining
industry, are seriously overloaded and causing much road pavement damage. The only data
readily available, from a special trial at the Chinese border crossing at Zamiin Uud in 2003,
showed an average of 41 ESA per vehicle. Anecdotal data reports that the average net load
carried in (typically five or six-axle) coal trucks carrying coal to China in the South Gobi is
around 85 tonnes. This is many times higher than what would normally be expected (and is
achieved in countries that have implemented measures to control over-loading on the road
network).
It is not economic to design road pavements for such overloading and such loads also do
severe damage to the ground where they are hauled over earth roads. Therefore it is crucial to
implement an effective means of controlling this problem and protect the significant financial
investment that has been made in the road network.
For most functional road networks around the world, management authorities set axle load
limits for the road based on the design conditions for the road. Limits may take into account
gross vehicle mass and axle configuration and compliance is then made using weighbridges
(this planed to become standard practice in China on the arterial and tollroad network).
Road transport services (freight and passengers) are operated by the private sector, with
limited regulation by MRTT which has recently begun registering transport operators on a
voluntary basis. There is no requirement for formal reporting by the private road transport
operators and the published data is of very limited value.
Road safety is a serious concern in Mongolia, with total fatality rates of at least 25 deaths per
10,000 registered vehicles, and personal injury accident rates at four times this figure.
Currently, there are limited procedures in place aimed at the prevention of traffic accidents in
Mongolia by way of safety awareness programs.
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2.3 RAIL SECTOR
2.3.1 1949 agreement
An agreement between the People’s Republic of Mongolia (PRM) and the Union of Soviet
Socialist Republics (USSR) was in 1949 to establish a joint Mongolian-Russian shareholding
company (the “Ulaanbaatar Railway”) for the construction and operation of a Russian-gauge
railway line between the border near Naushki to Ulaanbaatar. Construction had begun in 1947
and operations began in 1949. The two shareholders of the company are the Mongolian
Ministry of Transport and the Soviet Ministry of Roads and Communications. In 1952 the
agreement was extended to cover construction of the line from Ulaan Baatar to the Chinese
border and the Choibalsan lines in the east of the country were also transferred to the
company in 1956. The Management Board is based in Ulaanbaatar. The Russians contributed
51% of the capital and the Mongolians 49%, partly in cash but also in kind through land,
materials and credits from USSR.
The joint ownership of the line has created significant problems for Mongolia, as any
upgrading needs both the approval, and a funds contribution, from the Russian government,
which inherited the agreement. As a result, there has only been very limited investment in
recent years and the main TMR line is currently in poor condition, leading to various
proposals for Mongolia to construct its own line parallel to the existing one.
2.3.2 Rail Transport Law
The Law on Railway Transport1, adopted in July 2007, sets out the principles governing
railway transport operations in Mongolia as well as providing the framework for railway
safety regulation. The Law establishes a Railway Authority, to operate on a self-financing
basis.
The key principles governing rail transport, as stated in the Law, are to:
•
ensure coordination of the railway transport under integrated regulations;
•
ensure regular control and supervision;
•
ensure access, quality and safety of railway transport services;
•
ensure sustainable operations in the railway sector;
•
create conditions for market competition in railway transport sector;
•
coordinate railway transport with the other transport sectors
The Law specifies that the railway strip will remain in the state ownership, and the basic
structure2 will be in state or (majority-state) ownership. Other railway objects3, such as
branches and railways for specific uses can have other forms ownership. The Law allows the
construction and use of a basic structure by legal entities on agreed terms, given eventual
transfer to state-majority ownership.
1
Source: Website www.legalinfo.mn, the Law on Railway Transport has been adopted on July 5, 2007.
2
Basic structure includes railway track and formation, engineering facilities, stations, junctions, energy and water supply,
communication, and information facilities to ensure normal operation of railway transportation as well as technical facilities such
as buildings, structures, culverts and fences.
3
Railway object means railway strip, basic structure, track, area, railway rolling stock, and other machinery and equipment and
assets related to railway transport safety.
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The Law also specifies the rights and responsibilities of the Parliament, Government,
responsible ministry and local authorities regarding railway transport. Parliament is
responsible for determining the state policy in railway transport, ensuring compliance with the
Law, and ratifying international treaties and agreements. Government is responsible for the
implementation of state policy in railway transportation, awarding and suspending
construction licences for basic structures and determining the terms under which the railway
strip is provided4.
Railway Authority
The Railway Authority (RA) has 4 divisions:
•
Administration and finance division;
•
Policy implementation and cooperation division;
•
Transport regulation division;
•
Division for certification and legal affairs
It also has a section for supervision and a centre for information and registration (see
organizational chart below). It reports to the Cabinet member in charge of railway transport
and act within his jurisdiction.
Figure 1 Structure of the Government implementing agency, Railway Authority
The RA “Strategy of Activities and Restructuring Program”, approved in August 2008, sets
out to effectively plan and to implement the state management of railway transport. It has the
following strategic objectives:
1. Improve efficiency and competitiveness of railway sector by developing and
implementing the sector’s long, medium and short –term plans, improve the sector’s
information, registration and research capacity and providing information to users;
2. Improve service quality and coverage of the railway sector transport to meet demand
from the society by developing and introducing the new standards for services, endorse
decisions for service quality and coverage and support implementation;
3. Ensure security of railway transport by supervising safety of railway transport,
providing methodological support and compliance for entities involved in railway
transportation, developing and implementing comprehensive plan to ensure railway
transport safety;
4. Develop necessary legal, economic and other prerequisites for improving the state
management for railway sector transport by developing necessary legal acts and
regulations, ensuring the state administration leadership, improving human resource
leadership;
5. Ensure implementation and compliance with international treaties, legal acts and
regulations in railway transport by ensure implementation and compliance with provisions
of international laws and regulations, ensure monitoring for compliance;
4
Railway strip means the land required for safely undertaking rail operations on the railway tracks.
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6. Improve economic and investment efficiency in railway transport and develop
international cooperation by improving utilization of state assets in railway sector and
improve efficiency, and developing international cooperation.
The Railway Authority (RA) is thus, amongst other things, responsible for the implementation
of legislation covering both economic and safety regulation of the rail sector, as well as
licensing and supervising new lines and railway operators.
2.3.3 Infrastructure
The Mongolian rail network consists of two disconnected portions: a north-south line
connecting Russia and China via Ulaanbaatar, together with seven short branches mostly
serving mines and a line in the extreme north-east serving Choibalsan and connecting with the
TSR south of Chita. The terrain is flat to undulating; the average grade is 0.9%, although this
reaches 1.8% in the section between Ulaanbaatar and Bagahangai. The total length of the
network, all of which is single-track, is about 1,815 kilometres, of which 1,111 kilometres is
the north-south main line. It is of Russian gauge and has been constructed to Russian
standards with Russian rollingstock. The mainline is predominantly (85%) 50 kg/metre rail
with wooden sleepers but is being upgraded (12%) to 60 kg/metre rail on concrete sleepers.
Traffic has approximately doubled in the last decade and MTZ has constructed several new
passing loops and is extending passing loops to 1250 metres; this allows a maximum train
size of 6,000 gross tonnes. The capacity of the mainline is quoted as 20 pairs of freight trains
per day, equivalent to 20 million tonnes of freight given the average train size of about 1700
net tonnes and allowing for a few passenger trains.
2.3.4 Transport operations
In 2007, the railway carried 14.1 million tonnes, of which 3.5 million tonnes was transit
traffic, mostly timber and petroleum products from Russia to China. It also carried 4.5 million
passengers (1.4 billion passenger-kilometres), almost all local. Local traffic, which has been
about 50 percent of the tonnage for the past few years, largely consists of coal to the Ulaan
Baatar power stations and ores to Erdenet.
Table 2.2 MTZ traffic volumes (2004-2007)
2004
Freight
Volume (000 tonnes)
Local
Import
Export
Transit
Total
Tonne-kilometres (mill)
Local
Import
Export
Transit
Total
Passengers (000)
International
2005
2006
2007
6857
1225
1125
4824
14032
7559
1166
1468
5393
15586
7337
1163
1814
4466
14780
7494
1332
1776
3474
14076
1916
513
1095
5355
8878
2160
529
1272
5987
9948
2194
545
1530
4957
9226
2447
672
1398
3856
8373
186
192
207
175
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Local
Total
Passenger-km (mill)
4152
4326
1219
4042
4227
1234
4131
4323
1287
4267
4474
1401
Traffic has reduced slightly in the past two years, as transit freight has fallen, partly being
diverted to direct crossing point in Manchuria. The reduction in transit freight is particularly
damaging, as in 2005 it provided 73 percent of the freight revenue from 60 percent of the tonkilometres, with a unit rate over twice that for local traffic.
At the end of 2005, the railway had 122 locomotives, 2,690 wagons and 322 passenger
coaches. As in most CIS countries, the locomotive fleet is old, on average about 20 years, and
in spite of some modernisation of the fleet, there is a continuing need for modern, reliable
locomotives to handle the increasing traffic. This is partly addressed through the Millennium
Challenge project (Section 4.3.1)
Coal tariffs are typically 6-7 tugrik/ntkm, equivalent to US$0.5 cents/ntkm. This is almost
certainly a loss-making rate when asset depreciation is taken into account and an operating
cost of US$ 1 cent/ntkm has been adopted in the analysis in Section 6.3.7. This is also
assumed to be the cost to a private operator if it runs its own train and pays access charges to
MTZ.
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3. SOUTHERN GOBI DEVELOPMENT PLANS
3.1 INTRODUCTION
This chapter first gives an overview of current coal and mineral production in Mongolia. It
then describes the main proposed mining projects in the South Gobi, their planned production
levels and start dates and the forecast transport volumes directly associated with the mines.
Finally, it summarises the development associated with the mine and makes indicative
forecasts of inter-regional passenger and freight movements.
3.2 OVERVIEW
Mining is the most important economic sector in Mongolia, accounting for about 27 percent
of gross domestic product and nearly 80 percent5 of export revenues in 2007. It directly
employs over 44,000 people. It possesses extensive mineral resources, with over 6,000 known
showings/deposits of 80 different minerals. The most economically significant of these are
coal, base metals (primarily copper and zinc), gold, and fluorite. It also produces limited
amounts of tungsten, salt, clay, lime and aggregates. Table 3.1 summarises production and
exports of the key minerals since 2002.
Table 3.1 Coal and mineral production and exports in Mongolia 2002-7 (000 tonnes p.a.)
2002
Production
Coal
Copper concentrates
Gold concentrates
Zinc concentrates
Fluorspar
Fluorspar concentrates
Exports
Coal
Copper concentrates
Zinc concentrates
Gold concentrates
Fluorspar concentrates
2003
2004
2005
2006
2007
5544
376
12
514
5666
372
11
488
6865
371
19
468
148
7517
361
24
23
508
134
8074
371
23
110
522
138
9238
372
17
155
638
132
549
12
193
435
563
14
188
1635
563
19
289
2218
587
24
311
2380
600
106
15
355
3269
608
133
12
360
Source: IMF country report 2008 and Mongolian Statistical Yearbook 2007
3.2.1 Coal
Although coal production has increased sharply in Mongolia since 2004 as exports to China
have increased, it is still relatively small by world standards, and particularly when compared
to production in Russia and China. However, Mongolia has large deposits of relatively lowcost coal, with brown coal in the central and eastern areas and bituminous coal in the central
and western areas. In total, there are 15 coal basins, with potential reserves of 150 billion
tonnes and 22 billion tonnes of proved reserves. Approximately 40 coal deposits are currently
5
12 percent from precious metals and 67 percent from other mineral products
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being mined in Mongolia, mostly through open-pit operations, with only two underground
mines. Around 96 percent of total production comes from seven large mines (Table 3.2).
Table 3.2 Coal production in Mongolia 2006 (000 tonnes p.a.)
Mine
Baganuur
Shivee Ovoo
Sharyn Gol
Tavan Tolgoi
Aduunchuluun
Eldev
Nariin Sukhait
Others
Total
Location
Baganuur city
Shivee Gobi, Gobisumbur aimag
Selenge aimag
Omno-Govi aimag
Dornod aimag
Dornogovi aimag
Omno-Govi aimag
-
Capacity
4000
2000
1100
1000
600
1000
5000
1300
16000
Production
2881
1200
710
405
226
407
1724
282
7835
Coal type
Lignite
Lignite
Lignite
Bituminous
Lignite
Bituminous
Bituminous
Lignite
Rail access
Yes
Yes
Yes
No
Yes
Road feeder
No
Yes
Source: Various, all ultimately sourced from Ministry of Natural Resources
The production from the South Gobi (Omno-Govi) mines is exported by truck to industries in
adjacent regions of China but the remainder is almost all used for electricity generation
(84%), steam heating and industrial uses.
The Baganuur deposit is located 110 km east of Ulaanbaatar and has been operated since
1978. The mine, which produces from three lignite seams, is served by a branchline linked to
the Transmongolian railway (TMR) at Bagakhangai.
Shivee Ovoo is located 250 kilometres south of Ulan Baatar on the TMR and was opened in
1992 with the strategic purpose of supplying the expanding domestic demand for coal in
Mongolia. It has a simple geological structure and large coal reserves, estimating at more than
2 billion tonnes.
Sharyn Gol is located about 100 kilometres north of Ulan Baatar in Selenge aimag. It is
connected to the TMR by a 64 kilometre branch line and supplies power plants in Erdenet and
Darkhan. It is an open pit mine which commenced in 1965 but production at this mine has
gradually decreased to 0.7 million tons per year, because of geological conditions and
operational problems
The Tavan-Tolgoi coal deposit is unique in Mongolia for both its size, 90 km2, and the high
quality of its coal. The deposit is located in the Ulannuur coal-bearing depression, 560 km
south of Ulaanbaatar and 90 km east of Dalanzadgad, with 16 coal seams ranging in thickness
from 2 to 72 metres (totalling 163 metres), with a maximum depth of 945 metres.
Aduunchuluun is a lignite mine supplying Choibalsan in the Dornod aimag and particularly
the local power plant.
Eldev is a new mine in the Alagtogoo bituminous coalfield 300 kilometres south-east of Ulan
Baatar, located 20 kilometres by road from Olon Ovoo on the TMR. It has reserves of 32
million tonnes within the Alagtogoo coalfield and has been operating since around 2001. It is
now exporting 250,000 tonnes p.a. to China via the TMR.
The Nariin Sukhait coal deposit in Omnigovi aimag is in one of three major coal-bearing
basins in the Gobi region, approximately 40 kilometres north of the Shivee Khuren - Ceke
crossing point on the Mongolia-China border. Metallurgical coal from the Nariin Sukhait
Mine is being trucked to Ceke and railed 450 km from there to a Chinese steel mill at Jiuquan
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in Gansu. There is a single thick seam of low-ash, high-rank, bituminous coal extending from
surface to depths ranging between 120 and 150 metres, with a thickness averaging around
approximately 60 metres. It continues across a major coal basin that stretches a total of 120
kilometres east and west of the mine. The mine, reported to hold 134 million tonnes of
reserves, has two open pits.
3.2.2 Other minerals
Although there are over 140 registered mining projects in Mongolia, the non-coal sector is
dominated by the Erdenet copper/molybdenum mine, the fluorspar mines of
Mongolrostsvetmet, and the top five placer gold mining companies, accounting for 81 percent
of 2001 output. Copper, molybdenum, fluorspar and placer gold account for 99 percent of
output with the remainder from small tungsten and industrial mineral operations.
Table 3.3 Major mineral mines and projects in Mongolia
Deposit
Erdenet
Oyu Tolgoi
Burenkhaan
Tumurtei
Tumurtiin Ovoo
Asgat
Tsagaan Suvraga
Bor Undur
Boroo
Gatsuurt
Hailaast
Minerals
Copper, Molybdenum
Copper, Gold
Phosphate
Iron
Zinc
Silver
Copper
Fluorspar
Gold
Gold
Gold
Location
Erdenet city
Omni-Govi aimag
Huvsgul aimag
Selenge aimag
Suchbaatar aimag
Bayan-Ulgii aimag
Dorno-Govi aimag
Khentii aimag
Selenge aimag
Selenge aimag
Tuv aimag
Operational
Yes
No
No
No
Yes
No
No
Yes
Yes
No
Yes
The Erdenet copper-molybdenum mine, 380 kilometres northwest of Ulaan Bataar, is
Mongolia’s only copper mine and has been in operation since 1978, earning about half of its
foreign exchange and providing almost 25 percent of government revenues. The Erdenet
Mining Corporation is a Russian-Mongolian joint venture company, employing over 6,000
people. It operates a conventional open pit with proven mineable reserves estimated at about
1.5 billion tons at 0.52 percent Cu. Current grades are higher than this (0.61 percent in 2002)
but are expected to decline to the average of the ore reserve. It is a high-cost produced by
world standards but has been profitable in recent years and is working to improve mineral
recoveries, labour productivity and down stream processing.
The Tumurtiin zinc mine in Sukbataar aimag, some 500 kilometres south-east of Ulaan
Bataar, began production in 2005 and plans to produce an average of 66,000 tons of zinc
concentrate over its 25-year life. It transports its concentrates by truck 360 kilometres west to
the TMR at Sainshand and on by rail to smelters in China.
Mongolia ranks fifth behind China, Mexico, South Africa and Russia in world fluorite
production with annual production of over 500,000 tons of ore and 180,000 tons of
concentrate. Mongolia possesses twice the fluorspar reserves of China, yet only produces 6
percent of China’s annual production. Four of the six mines in Mongolia are operated by
Mongolrostsvetmet accounting for over 90 percent of production; the largest is at Bor-Under,
380 kilometres south-east of Ulaan Bataar and served by a 60 kilometre branch from the
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TMR, which produces about two-thirds of all Mongolian production. Annual production
levels are expected to remain static at around 110,000 tons of chemical-grade and 80,000 tons
of metallurgical-grade concentrates in the short to medium term.
Practically all recorded gold production in Mongolia comes from placer mines operated by
Mongolian and Mongolia–Russian joint venture companies, although a very small number of
hard-rock operations extract limited amounts of the metal. Most placer operations are found in
the Zaamar, Bayangol, Tolgoit and the North-Central goldfields. Output is declining as large
readily accessible deposits with rich ore seams are depleted and smaller mines are being
exploited, leading to increased unit costs and lowered ore grades. In 2007, recorded
production was 12 tonnes, derived from a large number of registered gold mines widely
distributed across the country. The largest 7 mines produce about half of annual gold output;
over 40 percent of the production comes from Tov aimag and a further 35 percent from the
Selenge, Darkhan Uul and Arkhangai aimags. Large numbers of artisan miners also extract
gold from tailings. Overall gold production in Mongolia increased between 2002 and 2005,
with the commissioning of new gold mines at Boroo, a medium-sized deposit 135 kilometres
north of Ulaan Baatar, Bumbat, 210 kilometres west of Ulaan Baatar, in Tuv aimag, and Olon
Ovoot, located 550 kilometres from Ulaanbaatar and 100 kilometres from Dalanzadgad in the
South Gobi, but has since declined to the 2002 level.
3.3 KEY MINING DEVELOPMENTS IN SOUTH GOBI
3.3.1 Overview
Table 3.4 shows the major coal and mineral projects currently planned for the South Gobi. It
includes estimated lives and assumed annual production and start dates. These can be
expected to change as the projects are fully developed; in addition, as the coal deposits, in
particular, are only partially explored, further developments can be expected in the mediumterm.
Table 3.4 Coal and mineral projects in South Gobi
Mine
Tavan Tolgoi
Nariin Sukhait
Ovoot Tolgoi
Sumbar
Baruun Naraiin
Tsagaan Tolgoi
Oyu Tolgoi(1)
Tsagaan Suvraga(1)
Life (years) Production
(000 t p.a)
200+
15000
40
2000
50
5000
50
5000
20
6000
20
2000
15-50
650
30
150
Mineral
Coal
Coal
Coal
Coal
Coal
Coal
Copper
Copper
Start date
2012 full
2003?
2008
2015?
2012
2012?
2012
2015?
(1) Also small quantities of other metals; copper assumed to be transported as concentrate (30% copper)
Source: Company websites and various
3.3.2 Timing
Tavan Tolgoi is a major coal deposit, including both coking and thermal coal, located about
150 kilometres north of the Chinese border and the same distance south east of Dalanzadgad.
It contains over 4.5 billion tonnes of established reserves, of which 1.9 billion tonnes are
coking coal.
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Nariin Sukhait is one of approximately 40 coal deposits presently being mined in Mongolia.
The Nariin Sukhait coal deposit is within one of three major coal-bearing basins located
almost entirely on lands controlled by Ivanhoe in the Gobi region. Metallurgical coal from
the Nariin Sukhait Mine is being shipped to a Chinese steel mill. The coal seam, one of five
conformable seams identified to date at Nariin Sukhait, has been mapped in outcrop and subcrop throughout a major coal basin that stretches a total of 120 kilometres, east and west of
the mine, on ground controlled by Ivanhoe. There is a single thick seam of low-ash, highrank, bituminous coal extending from surface to depths ranging between 120 and 150 metres,
with thickness ranging from 32 to 90 metres, with an average of approximately 60 metres.
Ovoot Tolgoi is an extension of the Nariin Sukhait deposit, located about 45 kilometres north
of the Chinese border at Ceke. The coal has the same broad characteristics as the Nariin
Sukhait coal and production, which commenced in April 2008 will be delivered to similar
customers, power plants and steel plants in northern China, particularly in Gansu some 450
km to the south. Coal will initially be trucked to the border at Ceke, where a coal loaded
handling the Nariin Sukhait production is already in operation. Measured and indicated
reserves are estimated at 250 million tonnes, in two main fields; longer-term plans include the
development of an underground mine. Planned annual production is not known but has been
assumed at 5 million tonnes.
The Sumbar deposit lies 16 kilometres east of Ovoot Tolgoi. The deposit is currently being
delineated but initial results show coal of similar quality to Ovoot Tolgoi, although the seam
is not quite as thick.
Baruun Navan is located about 20 kilometres west of Tavan Tolgoi with a reported potential
production of about 120 million tonnes of coal, of which 70 million is coking coal and 50
million tonnes is thermal coal. It is expected to take 2 years to construct the mine, with
production commencing in 2011 or 2012. The annual production is planned at 6 million
tonnes, giving a mine life of 20 years. The potential customers are power plants and steel
producers in northern and north-eastern China, who would be served by an extension of the
Tavan Tolgoi rail line.
The Oyu Tolgoi gold, copper and molybdenum prospect is a world-class deposit
approximately 560 kilometres due south of Ulaan Baatar and 200 kilometres south-east of
Dalanzadgad. The deposit has inferred resources of some 489 million tons of ore, grading
1.08 percent copper and 0.07 g gold per tonne, i.e. about 5 million tonnes of copper and 30
tonnes of gold but major extensions of the ore body have been identified which will
significantly increase these figures. Copper concentrates from the mine will probably be sold
to Chinese smelters.
Tsagaan Tolgoi is a small (40 million tonnes of reserves) coal deposit about 100 kilometres
west of Oyu Tolgoi which has been suggested might be a source for the power plant
supplying electricity to the Oyu Tolgoi development.
The region surrounding Tsagaan Suvarga, approximately 150 km northeast of Oyu Tolgoi in
Dornogovi aimag, contains seven significant copper-molybdenum deposits, of which the most
significant is at Surven-Sukhait. This deposit is 164 kilometres southwest of the Zuun-Bayan
station, at the end of a 50 kilometre branch from the TMR. Commercial ore reserves of the
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deposit have been estimated at well over 220 million tons at 0.54 percent copper and 0.019
percent molybdenum, similar grades to those at Erdenet, although the reserves are only 15%
as large. As yet, there are no firm plans for its development.
3.4 SECONDARY DEVELOPMENT
The forecast direct employment when the projects are in production is summarised in Table
3.5. These will live on adjacent to the mine site; practice in many countries is to work on a
week-on, week-off basis (or similar) and this would mean that approximately half the staff
would be living at any one time at the minesite and the others at a local centre such as
Dalanzadgad.
Table 3.5 Forecast direct employment in South Gobi projects (post-construction)
Mine
Tavan Tolgoi
Nariin Sukhait
Ovoot Tolgoi
Sumbar
Baruun Naraiin
Tsagaan Tolgoi
Oyu Tolgoi(1)
Tsagaan Suvraga(1)
Total
Production
(000 t p.a)
15000
2000
5000
5000
6000
2000
2000
500(2)
Employment
1200
150
400
400
500
150
3000
1000
6800
(1) Production figure is for concentrate (30% copper)
(2) Assumed for planning purposes
Source: Company websites and various
There will also be indirect employment generated by the projects. The ratio of total
employment created to direct employment in the projects is known as the employment
multiplier. Estimates of the value of this vary widely from under 1.5 to 4 or more. The lowest
estimates are associated with ‘fly-in fly-out’ mines with long-distance commuting and most
mine services sourced from major centres. There is considerable doubt on the validity of the
higher estimates and the current consensus appears to be about 1.7-2.2; a value of 2 has been
adopted for the purposes of these forecasts (i.e. one non-mining job created for each project
job). Assuming a workforce participation rate of 60% gives a total population increase
attributable to the projects of about 25,000 and a total population in South Gobi of about
75,000.
3.5 FUTURE TRANSPORT DEMAND
The outputs from the various mines summarised in Table 3.4 clearly show that the principal
economic driver of new rail construction will be the coal flows. Whilst the base metal mines
have the capacity to earn large amounts of revenue, the volume of freight they generate is
relatively limited and, even for Oyu Tolgoi, would be unable to justify significant new
construction, whilst a regional population of less than 100,000 would likewise be much more
economically served by truck and bus rather than a new railway.
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The scale of the coal reserves is such that future transport volumes will largely be determined
by demand, especially from northern China, rather than being constrained by availability of
supply. Demand for coking coal, in particular, is likely to be an important factor.
Historically, China produced all the coking coal it required, with very limited imports. With
the rapid increase in steel production, imports have increased but these still remain a very
small proportion of total demand. In 2007, estimated production of metallurgical coal was 365
million tonnes with exports of 6 million tonnes and imports of 3 million tonnes. The
production of steel is expected to continue to increase at about 8 percent p.a. for at least the
medium term and this is expected6 to lead to continued growth in imports, to around 20
million tonnes by 2013. Mongolia is well-placed to capture the majority of this import
demand. Whilst a significant proportion of China’s imports in 2005 and 2006 came from
Australia, the world’s largest coking coal exporter with an estimated 60 percent of the world
market, Mongolia has rapidly become the most important supplier and so far in 2008 has
supplied 50 percent of coking coal imports, and over 75 percent in June and July.
Given its geographical proximity, it is reasonable to assume that Mongolia will provide all
China’s coking coal requirements, other than a few specialised shipments. Whether it can
supply more, and squeeze out domestic production, is a moot question. The largest coking
coal production in China is from southern Shanxi and, in eastern China, Huaibei in Anhui.
Any additional coal that is imported into China from Mongolia will thus either be exported
direct or displace other coal which will then be in turn exported. Its main potential markets
will be the same as Chinese exports: Japan, Taiwan and South Korea. Its main competitors in
these markets, for both coking and thermal coal, will be Australia and Indonesia; currently
Chinese coal enjoys a $10/tonne freight advantage to Japan over Australian coal and
Mongolian coal will thus have to be mined and transported to the coast with an FOB price no
more than $10/tonne above that for Australian coal. Although Australian FOB prices in 2008
ranged from about $80/tonne for thermal coal to $150/tonne for coking coal, the long-term
level is likely to be much lower and the FOB cost is no more than $50/tonne. The
competitiveness of Mongolian coal in the North Asian markets will thus critically depend on
the cost of rail transport to either Russian or Chinese ports.
China is not self-sufficient in copper, reportedly producing only about 30% of its concentrate
requirements. It currently imports about 4-5 million tonnes of concentrate7 and about 1.5
million tonnes of refined copper, equivalent to around 3 million tonnes of copper, or 10
million tonnes of concentrates. Oyu Tolgoi should thus be able to readily export its entire
production of copper concentrates (around 2 million tonnes p.a.) for the foreseeable future.
Unless volumes are very high, these are generally transported by road in other countries if
there are no existing rail lines. However, where a rail line exists, rail will almost always carry
the product.
For planning purposes, the forecast volumes given in Table 4.6 have been assumed for export
coal from South Gobi.
6
See, for example, Australian Commodities , March 2008, Australian Bureau of Agricultural and resource economics (ABARE)
7
Assuming copper concentrates are 30% copper, this is equivalent to around 1.5 million tonnes of refined copper
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Table 3.6 Assumed mineral volumes ex South Gobi 2005-2025 (million tonnes p. a.)
Coal
China via Ceke
China via other
Overseas
Copper concentrates ex Oyu Tolgoi
Total
Medium-term
(2015)
Long-term
(2025)
5
10
10
2
27
7
20
20
2
49
The mines will also require inputs of mining supplies and fuel. However, these are generally
an order of magnitude smaller (typically 5-10%) than the mine output unless there is a smelter
attached to the mine and, with the exception of fuel, are generally not well suited to rail
transport. In most other comparable situations (e.g. South Africa, Zambia and Australia),
mining supplies are generally collected from a number of suppliers and delivered as a mixed
load by road as long as there is road access. These inputs therefore will rarely be a deciding
factor as to whether or not a railway is constructed.
In addition to the mines themselves, there will be demand for passenger and freight transport
from the settlements in South Gobi. However, again this is unlikely to be significant in terms
of deciding whether or not a line is built. Trip rates between the region and Ulaanbaatar are
unlikely to exceed 0.5 trips per capita p.a., say 50,000 p.a. Allowing for trips by car and
plane, this can be easily handled by 3 or 4 buses daily. In any event, unless a direct rail line is
built between the region and Ulaanbaatar, a rail trip will be around 1000 kilometres compared
to around 500 km by road.
Non-mine freight to and from the region is likely to be around 0.5-1 tonne per capita p.a.,
equivalent to around 50,000 tonnes p.a.; this also is too low to support a rail link and most, if
not all of this traffic is likely to be transported by road.
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4. SECTOR DEVELOPMENT PLANS
4.1 INTRODUCTION
This chapter summarises the current network development plans of both the road and railway
sectors, with special reference to the South Gobi, as background to the discussion of specific
projects in that region to support mining development.
4.2 ROAD MASTER PLAN
In 1993-4 a road master plan (RMP) was prepared with assistance from the ADB which has
since been largely implemented. The plan formulated a policy for both the road sector and
transport in general and developed a program for improving 5362 kilometres of road at a cost
of $427 million. At that time (1993) the total improved road network of the country was only
3097 kilometres, of which 1018 kilometres was paved and 2079 kilometres was gravel. By
2006, 2027 kilometres of the 5362 kilometres in the plan had either been improved or were
committed to be improved and the target for 2010 is to complete 3479 kilometres.
In [2005] GOM formulated a National Development Policy (NDP), covering all economic
sectors, between the years 2006 to 2021. Its objectives for the road sub-sector include the
continuing development and improvement of the corridors linking to the international
highways, constructing the three Asian Highways (AH3/AH4/AH32) (collectively known as
the ‘Millennium Road’ project) and continuing the periodic maintenance of state highways
and local roads. These objectives were translated into a set of staged development targets
specifying the length of road to be improved and the condition that is maintained at by 2021;
the proportion of the state road network (SRN) that is to be maintained at, or better than,
‘Good’ condition is to increase from 30 percent in 2006 to 70 percent by 2021, with 20
percent in ‘average’ condition from 2016. To achieve this, GOM policy to improve all
unpaved roads directly to asphalt, rather than use the intermediate option of gravelling.
The achievement of these objectives was addressed in more detail by an RMP prepared with
World Bank assistance in 2007. The key feature of the RMP is provide a sealed road between
Ulaanbaatar and each aimag centre and provide full connectivity between the international
network and the national roads serving the five economic regions of Mongolia. The plan has
three stages (in addition to the currently committed roads program):
•
Immediate (2008-2010): this includes periodic and rehabilitation works to protect the
sections of the existing paved road network which are currently in ‘good’ condition from
further deterioration and widening a number of roads to improve safety and increase
design speeds. It also includes preparation work for the subsequent stages by adopting
new lower-cost pavement technologies, expanding the strategic planning capacity of the
MRTT and the further development of road and bridge information management systems
linked with weigh-in-motion traffic sensors and the installation of heavy vehicle weigh
bridges.
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•
Short-term (2011-2015): this includes the periodic maintenance and rehabilitation of
roads currently in ‘fair’ to ‘poor’ condition because of the maintenance backlog and
continuing the 1993-1994 plan for asphalt construction. It also includes the replacement
of a number of existing wooden bridges by concrete bridges to maintain design speeds
and ensure road user safety.
•
Medium-term (2016-2020): this focuses on increasing road connectivity between the
eastern and western regions of the country and creating a fully-developed all-weather
national road network.
Table 4.1 summarises the planned output and cost of the RMP.
Table 4.1 Currently committed and RMP 2007 programs and cost 2008-2020 (2006
prices)
Unit
Currently committed (km)
Recurrent maintenance
Capacity expansion (km)
New construction (km)
Bridges (number)
Other
Total
Cost
($US million)
2455
352
5770
190
-
237
47
1438
58
3
1783
Unit cost
($ 000/unit)
134
249
305
-
Recurrent expenditure covers routine maintenance, periodic maintenance (assumed to be done
every 8 years at a cost of $50-60,000/km for a sealed road) and $42 million to address
deferred maintenance.
The main component of the RMP is the upgrading of earth roads to fully engineered 7 metre
/10 metre asphalt concrete standard, providing all-weather connectivity between Ulaanbaatar
and twenty one aimag centres and access for each of the five economic regions to an
international border post.
The total cost of the program was estimated at US$1.8 billion. This cost represents
approximately 3.3 percent of the country’s forecast GDP over the period (assuming 6 per cent
annual growth), which is high, but not enormously so by world standards, and will be partly
funded from specific users such as the mining sector. The RMP states that, where possible,
GOM should encourage resource extraction investment projects to upgrade or construct roads
used by a mine to transport its output to the processing site. These roads can then be handed
over back to the GOM who would then operate the road on a toll basis to at least cover the
road’s recurrent maintenance cost.
Table 4.2 summarises the projects within the South Gobi region included in the RMP.
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Table 4.2 RMP projects affecting South Gobi (2008 prices)
Date
Ulaanbaatar – Mandalgovi
Dalanzadgad – Gashuun Suhait
Ovoot Tolgoi – Chinese border
Mandalgovi – Dalanzadgad
Total
Distance (km)
2008-10
2008-09
2009
2011-15
230
329
[40?]
293
892
Cost
($US million)
BOT?
99
12
88
It does not include any projects connecting Dalanzadgad towards the east and a junction with
the trans-Mongolian Highway north of the Chinese border at Zamyn-Uud. The costs of these
roads are estimated from the 2006 unit costs in Table 4.1, increased by 20% to update to 2008
price levels (i.e. an average cost of $300,000 per kilometre).
Figure 4.1 RMP projects 2008-20
4.3 RAIL INFRASTRUCTURE PLAN
4.3.1 Millennium Challenge
The dual ownership of MTZ has created considerable difficulties for Mongolia, not least in
terms of agreeing an investment and upgrading plan, as the Russian interest would be liable
for 50% of any investment cost, given that the railway is not capable of financing any
significant expenditure from retained earnings. In 2007, the US Government, acting through
the Millennium Challenge Corporation (MCC), provided a grant of US$ 285 million to GOM,
of which US$188 million was railway-related. The rail component includes:
•
the acquisition of around 30 freight locomotives, up to 75 new open top freight
wagons, up to 75 new specialized freight wagons, track maintenance equipment, and a
modernized signalling and communications system for the mainline;
•
supplying these assets to a new, initially government-owned, contractor-operated
leasing company (‘LeaseCo’) which will be established to lease them on commercial
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terms to MTZ and independent shippers. The project will support a review to determine
the best method for the creation and operation of LeaseCo and assist in forming its board
of directors, staffing its management unit, and contributing towards its start-up costs. It
will also assist in contracting a private sector firm to manage and operate LeaseCo
(‘OpCo’) and organising oversight of OpCo by an outside project management firm
together with GOM.
•
operational training and financial management technical assistance to MTZ
•
technical assistance to the Mongolia Railway Authority (‘MRA’) to strengthen its
technical capacities in areas such as rail safety, pricing, and track access licensing;
•
technical assistance to the Customs General Administration to strengthen its capacity
relating to the rail sector and the international transport of natural resources; and
The covenants to the grant include MTZ upgrading approximately 35 km of track to 65
kg/metre rails for each of 2007 and 2008 and approximately 50 km of track annually
thereafter. MTZ is also committing to lease the rail equipment acquired under the grant from
LeaseCo at fair market rates and allowing LeaseCo to lease such equipment to other shippers
and to allow such equipment to operate on MTZ's tracks.
4.3.2 Infrastructure upgrading and new construction
Millennium Challenge quite specifically does no include any component related to
duplication and/or upgrading of the main line, other than the signalling equipment, not to any
other new construction. Whilst upgrading of the mainline is being addressed, albeit rather
slowly, through the upgrade to 65kg/metre rail, this will take about 15 years at the rate of
progress included in the MCC agreement.
Duplication seems to be even further away unless a major source of third-party funding can
be identified. Whilst upgrading to 65kg/metre rail is costing around $300,000 per track-km,
duplication would probably cost between $1-3 million per track-km, depending on how much
realignment and reconstruction was carried out simultaneously. The need for any such
duplication depends on the rate of growth of traffic; local traffic is mostly coal to and from
power plants and is reasonably predictable. Transit traffic is less so; there is an alternative
route through Manchuria which is already used by the majority of traffic ex China and the two
main commodities ex Russia are timber, which is subject to export quotas, and oil, for which
an alternative pipeline is under construction. As current traffic levels are only about 60% of
the TMR capacity, particularly with the improved signalling, there is ample room for traffic
growth unless large additional quantities (say 5-10 million tonnes p.a.) of export minerals are
transported on TMR. If these are from southern Mongolia to China, the bottom 250
kilometres from around Sainshand will need to be duplicated; if they are exported to Russia
either the top 870 kilometres will need to be duplicated or a new route via Choibalsan will
need to be constructed.
The difficulties in investing in infrastructure under the current ownership of MTZ have led to
suggestions that a second independent track could be constructed parallel to the existing one,
but owned and possibly operated by a 100% Mongolian entity. This solution appears fraught
with many potential problems, particularly as Mongolia relies heavily on feeding traffic to
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and from Russia; a more practical solution if the Russian partner in MTZ is reluctant to invest
might be for Mongolia to invest by itself and for MTZ to then lease the second track and pay
lease charges through revenue from access charges.
A number of new lines have been proposed at various times, some of which are more likely
than others. Figure 3.2 shows the network presented in the National transport Strategy
prepared in 2007. Most of the lines shown only likely to be built if there are major mining
developments which generate substantial export quantities of product; in practice this will
mean coal. The map shows connections between Tavan Tolgoi and Oyu Tolgoi and the
Chinese border but also lines linking to Sainshand and Mandalgovi, where there is a junction
with an east-west line traversing the whole breadth of Mongolia.
This network shown in Figure 3.2 must be regarded as a very long-term plan, of which the
lines needed to develop the South Gobi in the short and medium term are only a small subset.
Proposals for short and medium-term development which have been presented to various
seminars are discussed in more detail in Chapter 5.
Source: National Transport Strategy for Mongolia ADB 2007
Figure 4.2 Possible new rail construction
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5. ADJACENT NETWORKS
5.1 INTRODUCTION
This chapter describes the Chinese and Russian rail networks connecting to possible rail
infrastructure in Mongolia, the regional port infrastructure and capacity and the estimated
costs for exporting Mongolian minerals through Chinese or Russian ports.
5.2 CHINESE NETWORK
5.2.1 Overview of the regional rail network
China’s rail network is extensive but also highly congested and there is very little spare
capacity on key routes, especially those crossing the mountains just to the west of a line
running north-south between Beijing and Guangdong. Coal is about 40 per cent of the traffic
carried on China’s railways and, with its strong growth in recent years, which is forecast to
continue for at least the next decade, is the single most important factor affecting network
capacity.
The influence of coal on China railways is exacerbated by the location of the coalfields.
Although coal is widely distributed throughout most of China, and most countries have a
significant production, the major coalfields are all located west of the mountains. In the
Eleventh Five-year Plan (11FYP) the provinces have been classified into three groups:
•
Those which need to import coal from other parts of China; this is virtually
everywhere east of the mountains
•
Those which are self-sufficient; this includes the south-west and also western China
(Gansu, Xinjiang, Qinghai)
•
Those which are net coal exporters; this covers Shanxi, Shaanxi, Nei Monggol,
Ningxia and, by extension, Mongolia
Figure 5.1 shows the major coal consumers within northern China, together with the main
railway routes of the coal network as in 2006. Several power stations are located on the
Shaanxi and Hebei coalfields, together with western Shandong, with others near the major
population and industrial centres of Beijing, Tianjin and Liaoning. The coking plants are
located either at major steel producing centres, such as Baotou in Nei Monggol and Anshan in
Liaoning, or on the main coking coalfields in Taiyuan and southern Shanxi.
The major coal ports are located along the east China coast from Jinzhou in the north to
Lianyungang in the south. Although China typically exports 50-70 million tonnes of coal
annually, mostly to Japan and South Korea, the main coal traffic through these ports is
domestic coal carried by coastal shipping to Jiangsu, Shanghai, Zhejiang, Fujian and
Guangzhou.
The majority of this coal is carried from the main inland fields in Shaanxi, Shanxi, Ningxia
and Nei Monggol, mostly by rail but with a significant volume by road where the railway is at
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capacity. Nine railway lines, forming three groups, currently cross the mountains separating
these fields from the coastal plain:
•
•
•
The northern route which carries coal from northern Shanxi, northern Shaanxi,
Ningxia and Nei Monggol to Qinhuangdao and Huanghua. This group includes the two
most heavily used lines: the Daqin line and the privately-owned and operated
Shenshuohuang line
The central route from central Shanxi to the Shandong ports
The southern route from southern Shanxi and southern Shaanxi to Rizhao and
Lianyungang.
Of these, the northern corridor is by far the most heavily used: in 2005 the northern corridor
carried over 500 million tonnes, compared to about 75 million tonnes on the central corridor
and 110 million tonnes on the southern corridor. These volumes increased significantly in
2006 and 2007 and the Daqin line is now carrying around 400 million tonnes by itself.
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Figure 5.1 Major centres of coal demand in northern China 2006
Source: Based on Barlow Jonker unpublished report 2006
Projections presented at an NDRC seminar in 2006 forecast that shipments from the main
western coalbases (Shaanxi, Shanxi, Nei Monggol and Ningxia) would increase from around
540 million tonnes in 2005 to 1280 million tonnes by 2020; shipments through the northern
ports would increase from 390 million tonnes to over 690 million tonnes. This requires
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capacity over double that which existed at that time and it is not surprising that the railway
Medium and Long-term Development Plan (MLTDP), which was prepared in 2004 and
covers the period to 2020, places considerable emphasis on expanding coal transport
capacity.
Table 5.1 gives the seven main coal ports on the east coast, together with indicative estimates
of the port capacity expected in 2010. The bulk of the 2005 throughput was domestic
transhipment to eastern and southern China; exports totalled only about 70 million tonnes,
about 20 percent of the total port coal throughput.
Table 5.1 Coal shipment ports – East China
Qinhuangdao
Tangshan
Tianjin
Huanghua
Qingdao
Rizhao
Lianyungang
Total
Coal shipment
2005 (tonnes
million)
145
14
80
67
9
20
14
350
Capacity
(tonnes million
2005)
137
30
73
75
23
25
22
385
Capacity
(tonnes
million) 2010
187
110
100
110
23
35
40
605
5.2.2 Chinese railway development plans
Plans to expand rail capacity through the mountains were set out in some detail in the
MLTDP. Figure 5.2 shows the routes, with the red line showing the screenline marking
where the mountains are crossed.
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Figure 5.2 Coal transport routes between Shaanxi and eastern China 2008
The corridors from the Datong region, covering Datong, Shuozhou, Xinzhou and the west of
Inner Mongolia (excluding Dongsheng) include:
•
Datong-Qinhuangdao (653 kilometres), an electrified double-track line equipped
with automatic blocking signalling (ABS). Its 2008 freight transport capacity is 400
million tonnes and it is effectively at capacity
•
.engtai-Shacheng-Datong (Fengshada) (354 kilometres), an electrified double-track
line with ABS. Its freight capacity is 65 million tonnes (allowing for 24 pairs of
passenger trains) and it is at capacity. Coal represents about 45 percent of its traffic. A
relief line is being constructed from Jining to Zhangjiakou and the remainder upgraded to
give a freight capacity of 85 million tons.
•
Jining-Tongliao (Jitong) (942 kilometres) is a single non-electrified line equipped
with semi-automatic blocking (SABS). Its freight capacity is 10 million tonnes and it will
be upgraded to increase its capacity to about 15 million tonnes.
The Shenfu region mostly consists of mines operated by the Shenhua Corporation. Output is
expected to reach 180 million tonnes in 2020, of which 160 million tonnes will be carried by
rail to Huanghuagang, south of Tianjin. This line is a privately-constructed and operated
electrified double-track railway, equipped with ABS. It is currently carrying around 100
million tonnes on its mainline and the line will be upgraded to increase its capacity to at least
200 million tons. In addition to the mainline, there are two feeder lines (one connected to
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Daqin) and, importantly for Mongolian coal, the Baoshen line from Baotou to near Shenmu
(Figure 5.3).
Figure 5.3 Shenhua network and mines 2008
The Taiyuan region covers mines in Xishan, Fenxi, Huozhou, Yangquan, Taiyuan, Jinzhong
and Lüliang and is the main source of coking coal in China. The existing and proposed coal
transport corridors are:
•
Shijiazhuang-Taiyuan (231 kilometres), an electrified double track line equipped
with ABS. The line has a freight capacity of 75 million tons is operating at capacity. A
new 200 km/hour mixed-traffic line is being constructed from Shijiazhuang to Taiyuan
which will more than double capacity. The connecting lines eastward from ShijiazhuangDezhou and Qingdao-Jinan will also be electrified.
•
Houma-Yueshan (252 kilometres), an electrified double-track line equipped with
ABS. The line has a freight capacity of 80 million tonnes, and carries about 50 million
tonnes of coal. It is being upgraded to 100 million tonnes capacity, with 70 percent of this
being allocated for coal.
•
Handan-Changzhi (220 kilometres), a non-electrified single line with SAB and a
capacity of 15 million tons. It carries about 5 million tonnes of coal. Both this line and its
extension between Handan and Jinan are planned to be duplicated, with the freight
capacity increased to about 80 million tons, 50 percent of which will be allocated for coal
transport.
•
Beijing-Taiyuan (Jingyuan) (437 kilometres), a non-electrified single line with SAB
and a capacity of 18 million tonnes of freight. It is currently operating at capacity,
carrying 10-15 million tonnes of coal. It is planned to be upgraded to increase its
capacity to 20 million tons.
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•
A completely new dedicated coal line has also been proposed between Liuliang and
either Rizhao or Shandong. This will be majority owned by the three provinces of
Shanxi, Henan and Shandong, with MOR owning about 30-35%. The line will be a highquality double-track electrified line similar to the Shenhua and Daqin lines, with a
potential eventual capacity of 200 million tonnes or above.
East and south Shanxi, which covers mines in Jincheng, Luan and surrounding areas, is a
major source for coal used in the chemical industry. Output is expected to double to about
200 million tonnes by 2020, of which 115 million tonnes will be transported by rail along
two corridors:
•
•
Handan-Changzhi (see above)
Taiyuan-Jiaozuo (434 kilometres), a non-electrified single-line with SAB as far as
North Changzhi and an electrified double-track line with SAB from there to Yueshan.
The freight capacity for the southern section is 50 million tonnes it is operating close to
capacity carrying over 40 million tonnes of coal. Following electrification of the
connecting Xinxiang-Yueshan section, the capacity of the Taiyuan-Jiaozuo line will be
increased to about 90 million tonnes.
The Shaanxi region covers the Hancheng, Huangling, Tongchuan and (to be developed)
Yulin areas. Coal output is expected to reach 200 million tonnes by 2020, 90 percent of
which will be carried by rail on three corridors:
•
Zhengzhou-Xian section (511 kilometres) of Liangyungang-Lanzhou (Longhai) line,
an electrified double-track line with ABS. The line carries 56 pairs of passenger trains,
leaving only about 50 million tonnes of freight capacity and is currently saturated.
Construction of a dedicated passenger line linking Zhengzhou-Xian is underway, together
with duplication of Baotou – Xian and the existing Zhengzhou-Xian section can then be
used for freight transport with a capacity of about 100 million tonnes.
•
Houma-Xian (288 kilometres), a non-electrified single-track line with SAB and a
capacity of 15 million tonnes, of which about 40 percent is utilized. It is planned to
upgrade its capacity 20 million tonnes.
•
Xian-Nanjing (1,086 kilometres total length), a recently-constructed single line, of
which Xian-Nanyang is electrified. The line has a freight capacity of 20 million tonnes
but duplication is planned to increase its capacity to over 50 million tonnes or more.
•
Xian-Ankang, an electrified single line equipped with SAB. It has a freight capacity
of 14 million tons and is at capacity. It is planned to duplicate the line and increase its
capacity to 50 million tonnes.
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Table 5.2 Capacity of Coal Transport Corridors by 2020
Railway Lines
1
2
3
4
Mileage
(km)
Current
Status
Upgrading
Measures
Upgrading
Improving
Upgrading
Double
tracking
Separation of
passenger &
freight lines
Improving
Double
tracking
Electrificatio
n
Improving
Separation of
passenger &
freight lines
Improving
Double
tracking
Double
tracking
354
653
942
802
5
Beijing-Shacheng-Datong
Datong-Qinhuangdao
Jining-Tongliao
Shenmu-SuoxianHuanghuagang
Shijiazhuang-Taiyuan
231
Double line
Double line
Single line
Single &
Double
Double line
6
7
Houma-Yueshan
Handan-Changzhi
252
222
Double line
Double line
8
Beijing-Taiyuan
437
Single line
9
10
Taiyuan-Jiaozuo
Lianyungang-Lanzhou
434
511
Double line
Double line
11
12
Houma-Xian
Nanjing-Xian
288
1,086
Single line
13
Xian-Ankang
260
Single line
Coal Transport Capacity
(million tonne)
2002
2020
Increase
65
100
35
100
200
100
10
20
10
80
200
120
75
100
25
80
15
100
100
20
85
18
20
2
50
49
100
100
50
51
15
20
70
5
70
14
50
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In addition to increasing the capacity across the mountains, China plans to build several other
lines that could carry minerals from Mongolia:
•
The Hami – Linhe line is currently under construction as far as Ceke; this provides a
cut-off for transport between northern China and Xinjiang but also acts as a collector line
for traffic feeding in from Mongolia by road or rail, being around 400 kilometres north of
the current line from Wuwei to Urumqi
•
A number of feeder lines are either under construction or are planned to carry traffic
from railheads on the China-Mongolian border. These include (from the west):
o Urumqi – Altai Khan
o Ceke – Qingshui (already constructed with a coal loading terminal at Ceke)
o Gashuun Sukhait - Linhe (planned to carry traffic from Oyu Tolgoi and
Tavan Tolgoi
o Mandula - Baotou
o a major new line to carry coal from Bayan Ul in Nei Monggol to Fuxin in
Liaoning. This is planned as Phase 1 of a new line which will be extended to
Zhuengadabuqi on the Mongolian border (Phase 2) and then to Choibalsan in
Mongolia to provide a third trunk route between northern China and Russia.
These lines are planned, at least initially, as single lines, with a capacity of about 20-25
million tonnes and could typically be built within 18 months – 2 years of being approved.
Most of them are likely to be built as either joint venture lines, with the financing shared
between the central Government, provinces and potential customers, or as purely private
lines.
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5.2.3 Chinese port development plans
Table 5.1 shows the 2005 and planned 2010 port capacities at the main Chinese coal ports.
Capacity is expected to increase by 200 million tonnes during this period. The bulk of the new
capacity will be added at Qinhuangdao (50 million tonnes), Tangshan (80 million tonnes
through the construction of a new port at Caofeidian), Tianjin (37 million tonnes) and
Huanghua (35 million tonnes, to be provided by Shenhua).
5.2.4 Handling constraints at border crossings
The difference in gauges between the Chinese and Mongolian systems currently requires
traffic to be transhipped at the border. This is a time-consuming process, exacerbated by the
bureaucratic procedures. The transhipment itself is generally not a problem but it does require
adequate supplies of wagons on either sides of the border and this is often reported
(particularly on the Chinese side) to add considerably to the delay.
Where the traffic only travels a short distance within one of the countries, a system of dual
gauge operation was often used historically. However, when the gauges are as close together
as the Chinese and Mongolian, with under 100 mm between the tracks, dual gauge is really
only suitable for short distances at relatively slow speeds8. Minerals can be transhipped
relatively economically and straightforwardly, either by direct transfer (e.g. one gauge passing
over another, with the wagon above discharging directly into the wagon below) or by
unloading into a silo and then reloading in a separate operation; this method is used at Dostyk,
where around 5 million tonnes of ores are transhipped from the Kazakhstan system to the
Chinese system (see Figure 5.3).
Where a line has been dedicated to a particular traffic, however, it has often been built to the
same gauge throughout, even though this is different to the rest of the network in one of the
countries. This approach was taken in both Poland and Slovakia, where steel-making inputs
were imported from Ukraine some hundreds of kilometres on lines which were constructed to
Russian gauge rather than the European standard gauge.
If the Chinese lines currently planned and being constructed to the Mongolian border are
continued to mines inside Mongolia it seems clear from a railway operations viewpoint they
should be built to Chinese gauge and avoid any transhipment. However, traffic which moves
into China via Zamyn-Uud and Erlian will almost certainly be on broad gauge and this will
require the construction of a substantial facility there for transhipping the coal and minerals.
8
Another alternative is what is known as ‘gauntlet’ track where four lines, two from each gauge, are placed on a single formation
with enough room between them to ensure no objects can get lodged between the pairs of rails.
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Kazakh wagon being unloaded on top level into silo
Chinese wagons at ground level being loaded
Figure 5.3 Mineral transhipment facility at Druzhba (China – Kazakhstan border)
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5.2.5 Operational considerations
Although there are several private (or at least non-China Railways) operators currently
operating, most of them do so on their own networks and there are comparatively few private
wagons, and almost no private locomotives, operating on the Chinese network. The concept
of a Mongolian-owned train, with Mongolian locomotive and wagons, operating on the
Chinese mainline network, is thus some way off. China Railways has actively discouraged
privately-owned wagons for some years, principally because it wishes to maximise wagon
capacity utilisation by, for example, backloading general freight of some sort in coal wagons
that arrive at destinations in eastern China.
As yet, there are also no formal arrangements whereby a third party can pay access charges to
operate over the main CR network. The normal arrangement is that traffic is carried in CR
wagons; whilst they are on non-CR lines, a standard charge is made per day; whilst they are
on CR lines the normal CR tariff applies. The customer thus pays the CR tariff for the CR
portion of the trip and the non-CR tariff for the non-CR portion – much like the arrangements
for international transport.
An important consideration with the Chinese network is obtaining a reliable long-term
capacity allocation. Currently, there is an annual convention at which the available capacity
(which is constrained on most of the east-west routes) is allocated to users, and on which
MOR’s annual transportation plan is then based. If a particular shipper fails to obtain an
allocation, he can try for a non-plan allocation by applying to the relevant railway authority
but this is not guaranteed and is also subject to change if circumstances change.
Chinese rail tariffs have two elements, a flagfall and a rate per kilometre, with commodities
classified into six groups. Most coal falls into Class 4, for which the tariff is Rmb
9.30+.0434*kilometres. A 2000-km trip would thus be charged Rmb 96.10 (about USD 14).
Washed coal falls into Class 5: Rmb 10.20+.0491*distance - so a 2000 km trip would be Rmb
108 or USD 16/tonne. There are in addition two surcharges. One is a 'Railway Construction
Fund surcharge' which is levied on most traffic, including coal. This is currently .033 per
ntkm (Rmb 66 for 2000 km). The other is an 'electrification surcharge' of Rmb .012 per ntkm
which is charged if traffic is moving over electrified lines.
On joint venture and ‘local’ lines, tariffs are generally set locally and approved by the
provincial pricing authority. These are generally set on a cost-recovery basis, so may easily be
two or three times those on the national network (although there is no RCF surcharge on these
lines). Thus the tariffs on the Shenhua lines are set at maxima ranging from 12 fen/ntkm to 18
fen/ntkm.
In addition, there is a special tariff on the Daqin network, which was originally set to recover
the capital cost of construction. In order to avoid distorting traffic flows, the same tariff was
also applied to the two main routes competing with Daqin. In 2007, the average tariff on the
Daqin lines was Rmb 0.12/ntkm.
The actual tariff to be paid for transport between the Mongolian border and a shipment port
will thus depend on the precise route and the extent to which (on the non-MOR lines) the
maximum rate is charged or a discount applied. Indicative rates, assuming CR wagons, are
Rmb 161/tonne ($US 23.50) from Gauhuun Sukhait to Huanghua via Baotou and the Shenhua
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network, Rmb 170/tonne ($US 24.80) from Gashuun Sukhait to Qinhuangdao and Rmb
123/tonne ($US 18) from Erlian to Qinhuangdao via Jining and the Daqin line. Tariffs in
private wagons would need to be negotiated but would probably attract a discount of about
15% for the round trip (including a separate charge for the haulage of the empty wagons on
the return leg).
5.3 RUSSIAN NETWORK
5.3.1 Overview of the regional rail network
The Russian rail network connecting to Mongolia is relatively simple, consisting of two
parallel east-west rail routes, the Trans-Siberian (TransSib) and the more northerly BaikalAmur (BAM), together with a number of connecting lines. To the west, the lines serve Irkutsk
and the Siberian mining and industrial complexes and, to the east, the ports of Vanino,
opposite Sakhalin, and, further south on the Gulf of Amur, the ports of Vladivostock,
Nakhodka and in the Posyet area towards the Korean/Chinese border.
The Trans-Sib runs 9,300 km from Moscow to Vladivostock, with the Bam diverging at
Taishet, almost halfway along its route. It is double-track apart from the bridge over the Amur
at Khabarovsk (currently being upgraded) and is electrified along its entire length. According
to RZD, its capacity is about 100 million tonnes; its current traffic is not publicly available
but is understood to be about 50 million tonnes. The line west of Ulan-Ude is planned to
increase to 110 million tonnes p.a. by 2010 and to 125 million tonnes p.a. by 2025.
The BAM runs 4,300 km from Taishet in the west, north of Lake Baikal, to Sovgavan in the
east, paralleling the TransSib around 500 km to the north through difficult terrain and with
about 1,000 km of the route through permafrost. There is a line linking the two routes
between Tynda and Bamovskaya. The western section of the BAM from Taishet to Taksimo
(1,429 km) is electrified, with the first 704 km as far as Lena also being double-track. It is
understood duplication throughout is planned for the near-medium term. The capacity of the
westernmost section (Taishet – Ust Kut) is 50 million tonnes but that of the remaining singletrack section is about 15 million tonnes. The capacity between Ust-Kut and Tinda is planned
to increase to 30 million tonnes by 2010 and 50 million tonnes by 2025. Traffic volumes are
generally low: about 8 million tonnes p.a. on the western section and 5.5 million tonnes p.a.
on the east
5.3.2 Potential bottlenecks and constraints for sea-borne exports
In 2007 Russia exported about 97 million tonnes of coal p.a. out of a total annual production
of 314 million tonnes p.a, two-thirds of which is opencast. Sixty per cent of production is
from the Kuzbass, in western Siberia, with smaller amounts from Pechora, Donetsk,
Kuznetsk, Kansk Achinsk, Neryungry and Buryatiya in the Far East and the northeast.
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Table 5.3 Coal production in Russia 2005 and 2006
Coking coal
Steam coal
Highly volatile
Low volatility
Anthracite
Lignite
Total
2005 (MT)
70
230
96
50
9
75
300
2006 (MT)
70
239
103
52
9
75
309
At the start of 2007, Gazprom acquired an interest in the biggest producer SUEK, a strategic
move focussed on cooperation in power generation. The extent to which this deal has been
approved and finalized under company law is not known. Of the output, some 90 Mt or 29 %
goes into exports, and 219 Mt is consumed by Russia itself. The six largest coal producers
mine 55 % of Russia's coal. Exports of steam coal are mostly from opencast pits in
Kemorovo with very low production costs, shipped through both Pacific and western ports.
Freight rates for Russian producers in 2007 were typically about USD 25/t for hauls of about
4000 km.
Table 5.4 Major coal producers in Russia 2006
SUEK
Kuzbassrazrezugol
Yuzhkuzbassugol
Yakutugol
Vorkutaugol
LuTEK
Subtotal
Total
Tonnes (million)
2006
89.4
41.4
16.1
9.5
6.8
5.5
168.7
309
% total Russia
The six largest producers represent 55 percent of total output (Table 5.4). Total coal exports
in 2006 were 89.9 Mt (14 MT of coking coal and 76 MT of steam coal and anthracite), of
which 6.7 Mt were land-borne to other CIS countries and 6.4 Mt landborne to other countries,
leaving 76.8 MT seaborne, up from 60 million tonnes in 2004. In the Far East, 18.3 Mt of
coal was shipped, including approximately 5 Mt of coking coal. Current capacities in the Far
East are: Vostochnoy – over 15 mtpa, Posyet – over 1.9 mtpa, Nakhodka 0.4 mtpa, Vanino
0.6 mtpa and 2006 shipments were thus close to capacity.
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Table 5.5 Sea-borne exports Russia 2004-6 (million tonnes)
Baltic and Northern Russia
Black Sea
Far East
Vostochnoy
Vanino
Posyet
Nakhodka
Subtotal
Total
Of which
Steam coal
Coking coal
2004
31.2
13.8
2005
37.9
13.8
2006
43.3
15.2
15.2
60.2
14.0
0.4
1.6
0.1
16.5
68.2
18.3
76.8
53
7
60
8
68
9
5.3.3 Russian development plans
Russia is planning to expand its capacity to export coal through its own ports from 44 Mt in
2006 to 155 Mt in 2020, with production expected to increase to around 450 Mt by 2020, of
which about 80 Mt will be coking coal. The capacity of the capesize port of Vostochnoy is
planned to be extended from its current 16 Mt to 25 Mt while, in the northern Sea of Japan, a
new coal terminal is being constructed at Vanino by SUEK with a planned throughput of 6
million tonnes p.a in 2009, increasing to its 12 million tonnes capacity in 2010, assuming the
Kuznetovsky tunnel on the branch line is replaced by one providing greater capacity. It is
understood traffic to Vanino will travel on the BAM (which will also undergo some upgrades)
from Siberia as far as the junction with the Vanino branch at Komsomolsk.
The Mechel group, which includes the Mechel Steel plant in central Russia, the Yuzhny
Kusbass coal mines and the Korshunovsky iron-ore mine in southeastern Siberia, is set to take
control of the Russian far eastern port of Posyet from MDM, a Moscow-based banking and
metals group and there are plans to increase its annual capacity to 10 million tonnes. Plans
have also been floated by Sibuglemet to develop a new port with a capacity of 8 million
tonnes to export coking coal.
5.3.4 Handling constraints at border crossings and ports
With a common railway gauge, any delays at borders will be due to bureaucratic procedures
rather than physical barriers. However, in the ports, the principal problem is likely to be
gaining access to terminals, which are largely controlled by Russian coal companies or their
marketing arms.
This is illustrated by an attempt by China in 2004 to export products, particularly coal, from
the Tunangan region of Jilin through the adjacent Russian ports of Posyet and Zarubino where
they proposed to construct terminals. The Russian government stated they ‘advocated the use
of existing port facilities by Russian companies and doesn't see the need to rent out port
terminals to foreign companies, when Russian companies can provide the transportation
services and develop port facilities’. In addition, at the time the majority owner of the port of
Posyet was Siberian Coal Energy Co (SUEK), which provided 64 percent of the throughput of
the port and stated that Chinese coal would be competing for the same export markets as
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Russian coal produced by SUEK and that ‘It doesn't make sense to assist natural
competitors9’.
They key issue in Russian ports is thus the ownership of terminals and the extent to which
Mongolian coal would get access at times of either limited port capacity or when Mongolian
coal was competing with Russian producers for the same markets.
5.3.5 Operational considerations
Since the creation of RZD in 2003, the Russian rail network has in theory been open to third
parties and shippers have been able to operate their own trains, supply their own wagons or
continue to rely on RZD. During this period, a number of third-party operators have emerged,
some of whom (such as Severstaltrans) are the transport arms of major industrial
organisations but others of which are genuinely independent transport specialists. Most of
these operators own their own wagons but they generally continue to rely on RZD for
traction, except where they have a large-volume movement over a relatively short distance.
The tariff structure supporting this is unlike most other access charges in that the tariffs
remain commodity-based; the charge for traction is a fixed percentage of what is being
hauled, even though the cost is independent of the particular commodity being hauled.
The third-party operators are not restricted to Russia alone and can in theory operate
internationally across borders but in practice only Kazakhstan has a similar tariff structure and
movements are very limited at this stage. However, there is no physical reason why Mongolia
could not adopt a similar system and allow third-party wagons to be hauled from Mongolian
mines to Russian ports.
Russian tariffs for domestically-sourced coal are relatively low, with a strong distance taper.
Most Russian mines have historically paid around $25 per tonne for their export coal to be
hauled from Siberian to the Far East ports. These rates have increased significantly in 2008
although coal hauled in private wagons remains at around 2006 levels. However, the Russian
tariffs are sharply different for non-Russian coal transitting the network. Table 5.6 gives the
comparable rates from the two border crossing points, north of Ulaan Baatar and north of
Choibalsan. It shows two rates for each movement: one is for carriage in RZhD wagons and
the other is for carriage in private wagons. If private wagons are used, there is also a charge
for empty wagon haulage for the return leg; when this is taken into account the current rates
for transit coal are around two - three times higher than for domestically-produced export
coal, even before the discounts which large-volume producers are often able to negotiate.
9
SUEK had also been a vocal opponent in the past of proposals from China to build rail access for their coal
exports to the trans-Siberian rail network and thence to the larger Russian far eastern ports of Vladivostok and
Vostochnoy.
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Table 5.6 Rail tariffs Russia (September 2008)
Distance
(km)
Wagon
owner
Transit coal for export
Naushki
Nakhodka-Vostochnaya
4047
Naushki
Vanino
3872
Solovievsk
Nakhodka-Vostochnaya
3483
Solovievsk
Vanino
3308
RZhD
Private
RZhD
Private
RZhD
Private
RZhD
Private
Rouble
RZhD
Private
RZhD
Private
RZhD
Private
RZhD
Private
Origin
Destination
Domestic coal for export
Naushki
Nakhodka-Vostochnaya
4041
Naushki
Vanino
3866
Solovievsk
Nakhodka-Vostochnaya
3481
Solovievsk
Vanino
3306
Tariff
Conversion
Tariff ($US)
factor
(CHF)
94.62
80.43
92.02
78.22
85.13
72.36
82.58
70.19
1.11
1.11
1.11
1.11
1.11
1.11
1.11
1.11
85.24
72.45
82.90
70.47
76.69
65.19
74.40
63.23
947.78
510.30
938.18
510.12
919.68
508.92
906.97
503.32
25
25
25
25
25
25
25
25
37.91
20.41
37.53
20.40
36.79
20.35
36.28
20.13
Tariff for a block of 20 open wagons at 60 tonnes/wagon.
Whilst coking coal can probably bear these tariffs at current world prices, it is doubtful
whether this could be sustained in the long-run and Mongolian thermal coal using Russian
routes is clearly priced out of the market.
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6. INFRASTRUCTURE OPTIONS
6.1 INTRODUCTION
This chapter identifies the various road and rail infrastructure options for servicing the mines
and transporting production. The sector plans discussed in Chapter 3 provide an overall
framework but, for rail in particular, little guidance on the short and medium-term options.
This chapter presents options that have been presented by various groups within GOM to
recent seminars on mining development in the South Gobi and assesses them in terms of their
costs and benefits.
6.2 ROAD
The road networks that have been proposed in South Gobi are consistent with the RMP
network (Table 4.2) but also include a connection between Oyu Tolgoi and Sainshand,
serving Tsagaan Suvarga en route) as well as a cut-off connecting Tavan Tolgoi directly with
the Dalanzadgad – Ulaanbaatar road.
Curiously, no proposals have been made for a link between Ovoot Tolgoi/Nariin Sukhait and
the aimag centre at Dalanzadgad. Instead Nariin Sukhait is linked to Arvaikheer as part of one
of the north-south vertical roads.
Both the roads from the mines to the Chinese border are expected to be financed by the mines,
with fees then being levied for their use by third parties that are used to partially defray the
cost of construction and/or maintenance. This will probably require construction of the two
roads on a BOT basis, with tolls being charged on users for a specified time before the roads
revert to the state.
6.3 RAIL
6.3.1 Route options
Two possible rail networks have been presented in different seminars; although they have
many links in common they also have some differences.
The presentations have included the following links:
•
Cross-border lines from Ovoot Tolgoi to Ceke and Tavan Tolgoi and Oyu Tolgoi to
Gashuun Sukhait
•
A 300 kilometre line from Ovoot Tolgoi through Sumbar to Dalanzadgad and Tavan
Tolgoi
•
A connection from this line to the main TMR; three alignments have been proposed:
o From Tavan Tolgoi direct to Ulaanbaatar via Mandalgovi; this would provide
the most direct route to the north and Russia as well as providing a reasonable
service for non-mine traffic
o From Tavan Tolgoi to the TMR in the vicinity of Airag; this is the shortest
route to the TMR but involves a longer distance for traffic heading north
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From Oyu Tolgoi to Zunnbayan and from there on the existing branch to
Sainshand on the TMR. This involves even less construction, although the
Sainshand branch would probably have to be reconstructed. A variant of this
option is a direct line from Tsagaan Suvarga to the line from Oyu Tolgoi to
the Chinese border
o In addition, this analysis has considered an additional route direct from Tavan
Tolgoi to Sainshand which avoids the detour via Oyu Tolgoi.
Either of the last two routes would also fit with any longer-term plan for a new route to the
Russian ports via Choibalsan, saving about 200 kilometres compared to the route via the
existing TMR to Ulan Ude and subsequent travel on the TSR10. This new route would also
serve Baruun-Urt and Tumurtin en route to Choibalsan; however, these mines, as well as
Choibalsan itself, also have the option of connecting directly to Chinese branches which
approach the Mongolian border at Dular and Huolinhe.
o
These alternatives are discussed in detail in Section 6.3.7; the sections immediately following
support the analysis in that section and discuss issues which are common to all rail options.
6.3.2 Gauge
With the Chinese network being standard-gauge, any traffic to China from the existing MTZ
network must either be transhipped or bogie-exchanged at some point. In practice, only the
passenger traffic and a very limited amount of inwards freight traffic is bogie-exchanged by
the Chinese at any of their borders with all other traffic being transhipped. There is generally
only one bogie exchange facility at any given crossing but transhipment is normally carried
out by the importing railway; thus most imports to China are transhipped at the Chinese
border point (Erlian in the case of TMR) whilst exports are transhipped at the non-Chinese
border point (Zamyn-Uud in the case of TMR).
Historically there has been comparatively little bulk mineral traffic crossing the border. In
2006 Chinese statistics show 910,000 tonnes of metallic ores and 160,000 tonnes of coal were
imported at Zamyn-Uud.
The cost of transhipment depends on the volume being transhipped, the type of cargo and the
facilities. For the purposes of this report, a cost of $1/tonne has been assumed for the
transhipment itself but in practice, indirect costs are often incurred through reduced utilisation
of rollingstock unless there the transhipment is efficiently planned and performed and there is
adequate storage capacity at the transhipment point.
6.3.3 Intermodal options
Currently, intermodal transport is being used to transport production at both Tavantolgoi and
Nariin Sukhait, with trucks being used to transport coal to a railhead near the border where it
is transhipped for onward transport; similar arrangements exist for many small-medium mines
in China itself which do not have direct rail connections.
10
However, there would be almost no saving compared to a direct line to Ulaan Bataar and then via Ulan Ude.
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16
14
12
Range of typical cost
differences
Volume (mtpa)
10
8
6
4
2
0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Cost difference (c/ntkm)
5%
10%
15%
Assumptions:
•
a rail connection could be built for $2 million/km, while a comparable road connection would
cost $500,000
•
the cost of road and rail transport (excluding infrastructure) will typically be in the range $US
0.04-0.06 per ntkm for truck and $US 0.07-0.10 for rail
•
a 20-year project life
Figure 6.1 Breakeven tonnages for rail line construction
Where road transport does not adversely affect the local population or the environment, this is
generally the most economical method of transport for tonnages up to around 2-4 million
tonnes. The precise point at which a direct connection is justified will depend on individual
circumstances; Figure 6.1 shows typical breakeven tonnages for Mongolian conditions for a
range of discount rates (a commercial operation would typically use 15% or greater). The
minimum annual tonnage required to justify a direct rail connection, in the absence of other
considerations, is in the range 3-8 million tonnes; thus a mine producing 2 million tonnes of
output will rarely justify a rail connection on its own account, whilst one of 10 million tonnes
or above will do so almost always.
Table 6.1 South Gobi developments and rail connections
Mine
Output (mtpa)
Rail connection
Tavan Tolgoi
15000
Yes
Nariin Sukhait
2000
Unlikely(1)
Ovoot Tolgoi
5000
Probable
Sumbar
5000
Probable
Baruun Naraiin
6000
Probable
Tsagaan Tolgoi
2000
Unlikely
Oyu Tolgoi
2000
Unlikely(1)
Tsagaan Suvraga
500
No
(1) But rail connection will be justified in combination with adjacent developments
Table 6.1 summarises the implications of this analysis for the proposed mining developments
in South Gobi. The mine at Tavan Tolgoi in the east justifies a rail connection under any
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circumstances, as would the adjacent Baruun Navan. Those at Ovoot Tolgoi and the adjacent
Sumbar in the west also would probably justify a rail connection; if this is constructed to the
south, then it could also serve Nariin Sukhait. Oyu Tolgoi would be unlikely to justify a rail
link by itself but would be served by a line from Tavan Tolgoi to the south. However,
Tsagaan Tolgoi and (even more) Tsagaan Suvarga are marginal cases at best and would
probably transport by road to a suitable railhead unless other factors became significant.
6.3.4 Constraints on existing network and transhipment points
There are likely to be few capacity constraints on road haulage of minerals in the South Gobi.
An annual tonnage of 3 million tonnes p.a. (the likely range before rail is considered) can be
carried by between 100 and 200 loaded trucks per day, depending on truck size, well within
the capacity of a standard two-lane road. Special arrangements are generally made in most
countries in which minerals are hauled over well-defined routes in isolated areas such as the
South Gobi. Vehicles are generally truck-trailer combinations, with either two or three
trailers, with each trailer carrying from 20 to as much as 35 tonnes of payload11; however,
axleloads normally comply with local standards, normally 8-10 tonnes per axle, and
overloading can be easily controlled with such vehicles.
Figure 6.2 Mineral haulage – 147 tonnes gross, 105 tonnes net, axleload 9 tonnes
Rail, however, has several capacity constraints. The most important is the capacity of the
existing single-track TMR, which is a 23-tonne axle-load line in poor condition (Figure 6.3).
Whilst the axle-load itself is not a fatal constraint (as any export movements would be
11
Figure 6.2 shows a three-trailer combination operating in South Africa over mine roads which have public access. Each trailer
carries 35 tonnes and the gross combination mass is 147 tonnes.
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constrained by the permissible axle-load on either the Russian or Chinese systems), the
condition of the track and single line are.
The Russian network is generally built to 23 tonne axle-load and, while RZD is considering
increasing this on selected routes, the upgrading of the entire trans-Siberian network will take
many years. The Chinese network is generally built to a 20 tonne axle-load but since 2005
new wagons and lines are being designed for a 25-tonne axle-load. The Daqin line has already
been upgraded to 25 tonnes but the Shenhua line remains at 23 tonnes. There is clearly little
purpose in designing any new coal lines in the South Gobi to more than 25 tonnes, and even
that is only for traffic to eastern China.
Figure 6.3 Current TMR track – 50 kg/m rail, wooden sleepers, poor ballast
The theoretical capacity of the TMR is currently around 20 pairs of trains each day. If
additional crossing points are introduced, the signalling upgraded and the track improved so
that running speeds could increase, the capacity could probably be increased to around 35
pairs per day. Allowing for one or two pairs of passenger trains, this is equivalent to about 2530 million tonnes p.a. of freight. This would allow the export of possibly 10 million tonnes
p.a. of minerals but anything greater than this would require duplication.
The TSR is reported to have ample spare capacity but on the Chinese network much of the
national network is at or near capacity and the most promising route is likely to be the
Shenhua lines from Baotou to Shenmu and on to Huanghua.
The line from Erlian to Jining is single-track and will thus need duplicating if and when the
TMR is duplicated. However, from Jining onwards the South Gobi coal will be competing
with local production for the limited capacity available on Daqin and its links and will
inevitably be given lower priority than the domestic traffic.
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6.3.5 Rollingstock availability
Rollingstock is unlikely to prove a problem as long as MTZ permits non-MTZ/CR/RZD
wagons to operate over its network, as is envisaged under the Millennium Challenge grant.
Exports to Russia can be handled through operators such as Globaltrans who specialise in
providing wagons for private customers and, for major movements which can support
dedicated motive power, locomotives.
Exports to China will best be handled in Chinese wagons; although no standard-gauge
wagons Chinese wagons currently leave China, metre-gauge wagons work through between
Kunming and Vietnam and there seems no reason why they could not do so for the South
Gobi mines. The only constraint privately-owned wagons would face is the need for an agreed
procedure to minimise customs-related delays at the border. Currently there are no wagon
leasing companies in China but there is an ample number of wagon builders (ten
manufacturers produced the standard C70 and C8012 coal wagons in 2007). Similarly a
standard DF diesel locomotive can be obtained from four manufacturers.
6.3.6 Estimated rail capital and operating costs
The cost of constructing a new railway varies significantly, depending on the terrain (which
affects the quantity of earthworks and the number of bridges and tunnels and also the standard
of the track being constructed. Construction costs in China, the closest parallel to the South
Gobi, vary from a minimum of under $1 million per route-km for a single-track minimumstandard railway in easy terrain to over $10 million per route-km for a double-track mediumhigh speed line in mountainous terrain.
A line capable of carrying 25 million tonnes of minerals a year in moderate terrain such as the
South Gobi, would normally be constructed as a Class II railway in China, with a ruling grade
of 0.6 %. The cost of such lines is estimated at $1.3-2.0 million per route-km, depending on
the terrain and volume of earthworks. Table 6.2 gives an indicative breakdown for light to
moderate terrain.
12
The number refers to the net tonnes carried by each wagon; the C80 currently only runs on the Daqin line.
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Table 6.2 Indicative construction cost ($US 000 per route-km) (mid-2008 prices)
Item
Site preparation
Earthworks, grading etc
Culverts, drains, bridges, fencing
Trackwork
Rails
Sleepers and fastenings
Ballast
Installation
Subtotal
Loops, signalling, communications
Other (buildings, temporary works etc)
Stations and yards
Total
Contingency
Engineering, project management
Total
Cost
100
370
120
%
8%
29%
9%
156
125
87
30
399
171
59
54
1295
259
129
1683
13%
10%
7%
2%
31%
15%
5%
4%
100%
20%
10%
130%
For the purposes of route comparison and evaluation a unit construction cost of $1.8
million/km has been used.
Operating costs likewise depend on the standard of the line (in particular the axle-load) and
the terrain (which affects the tonnes per train and per locomotive). The two most modern and
efficient mineral lines in China are the Daqin and Shenhua heavy-haul lines. In 2007, the
average operating costs were almost identical at just under 0.008 $US/ntkm (Table 6.3). The
table also includes the average cost on the CR network for all freight operations, estimated at
$US0.0093/ntkm, excluding depreciation. For the purposes of the following analysis, a figure
of $US0.01/ntkm, including depreciation, has been used as representative of a range between
$0.009-0.012/ntkm.
Table 6.3 Indicative operating costs 2007 ($US c/ntkm)
Item
Labour
Materials
Fuel and power
Repairs and maintenance
Other
Subtotal
Depreciation
Total
Daqin
Shenhua
0.12
0.07
0.13
0.13
0.17
0.68
0.10
0.78
0.12
0.18
0.12
0.13
0.59
0.17
0.76
CR
(dsl/elec)
0.21
0.10
0.15
0.33
0.79
n.a.
n.a.
Source: Shenhua and Daqin annual reports, IBRD estimate
6.3.7 Analysis of route options
Cross-border lines to Tavan Tolgoi and Ovoot Tolgoi
The comparison of road and rail transport in Section 6.3.3has shown that the line linking
Tavan Tolgoi to Gashuun Sukhait should be constructed as soon as the coal mines production
increases to any marked extent. Similarly the line from Ovoot Tolgoi south is also likely to be
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justified as soon as production reaches 4-5 million tonnes p.a. The analysis therefore assumes
that both these lines are constructed as Chinese-gauge lines. The same reasoning would apply
to other proposed new mines near the Chinese border as they developed.
Ovoot Tolgoi – Tavan Tolgoi
The case for a connection between these two lines via Dalanzadgad is less clear. Mining
inputs alone would not require a connection from the north to Ovoot Tolgoi. Its justification
therefore depends on whether the Ovoot Tolgoi mines wish to have an alternative outlet for
their coal, either via Gashuun Sukhait and Baotou or via Russian ports.
Table 6.4 Comparison of routes between Ovoot Tolgoi and Baotou
From
Via Tavan Tolgoi
Ovoot Tolgoi
Tavan Tolgoi
Wuyuan
Total
Via Ceke
Ovoot Tolgoi
Ceke
Linhe
Total
To
Distance
Cost/ntkm (Rmb)
Cost/tonne (Rmb)
Tavan Tolgoi
Wuyuan
Baotou Xi
380
378
177
935
0.10
0.10
0.13
38.00
37.80
22.82
98.62
Ceke
Linhe
Baotou Xi
20
550
234
804
0.10
0.15
0.10
2.00
84.15
23.10
109.25
Table 6.4 compares the distances and operating costs between Ovoot Tolgoi and Baotou for a
route via Tavan Tolgoi and the route which will shortly be available using the new line from
Ceke to Linhe. The route via Tavan Tolgoi is longer by about 130 kilometres but is more
expensive by about Rmb 10/tonne, excluding the cost of constructing the line. At a discount
rate of 10%, this saving requires a volume of around 50 million tonnes before it becomes
worthwhile and the only justification for the line would then be the option of using the
Russian ports. If this is the case, using a discount rate of 10%, the line would need to generate
a saving of about Rmb 50/tonne (US$7/tonne) in the net return to the mine owners to be
worth constructing. The possibilities of this are discussed below in conjunction with the
Tavan Tolgoi traffic.
Connections between Tavan Tolgoi and TMR
Four routes (Options 1-4 in Table 6.5) have been identified for this connection. The principal
purpose in constructing one or more of these routes is to provide an alternative export route to
Russia or China or both and the table gives the distance by each option to Vostochnoy (for
exports via a Russian port), Qinhuangdao and Huanghua13 (assuming capacity is available on
the rail network for exports via a Chinese port).
For southbound traffic, the routes via the TMR are at least 300 km further than by using the
Gashuun Sukhait crossing point and the Chinese network. In addition, all these routes require
a bogie exchange at the border (as well as possibly increasing the capacity of the TMR by
duplication) and also need to negotiate the heavily congested network around Datong to gain
13
Although Huanghua is not one of the three Chinese ports open to Mongolia under the current transit agreement, it is assumed
this port could be readily added if required.
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access to either the Daqin railway or, further south at Shouzhou, the line to Huanghua. It is
therefore unlikely that any significant exports would use a link via the TMR in preference to
the Gashuun Sukhait line and a major consideration determining access to the TMR should
thus be its usefulness for exports via Russia.
Table 6.5 Alternative rail routes (distance to ports)
Route
Route option
Base
Gashuun
Sukhait
Northbound traffic
Tavan Tolgoi – TMR
TMR – Russia border (Naushki)
Russia border – Vostochnoy
Total
Southbound traffic
Border crossing point
Tavan Tolgoi – TMR
Tavan Tolgoi – Chinese border
TMR – Chinese border
Chinese border – Baotou
Baotou – Huanghua
Chinese border – Datong
Datong - Qinhuangdao
Datong – Shouzhou
Shouzhou – Qinhuangdao
Total (Qinhuangdao)
Total (Huanghua)
1
2
Sainshand
Sainshand
direct
507
876
4047
5430
Gashuun
Suhait
Erlian
400
876
4047
5323
Erlian
3
4
Airag
Ulaanbaatar
400
752
4047
5199
Erlian
530
402
4047
4979
Erlian
507
400
400
530
237
237
361
711
461
653
129
639
1858
1973
461
653
129
639
1751
1866
461
653
129
639
1875
1990
461
653
129
639
2355
2468
192
367
1003
634
653
1479
1562
For northbound traffics, the direct line to Ulaan Bataar is clearly the shortest, being 200-400
kilometres shorter than the other options; this needs to be balanced against the increased cost
of construction compared to the other routes.
The cost of transport by the alternative routes has been calculated as the sum of operating cost
(excluding infrastructure capital costs) on the new South Gobi lines and rail tariffs on the
other networks, using the tariffs documented in Sections Error! Reference source not
found., 5.2.5 and 5.3.5.
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Table 6.6 Alternative rail routes (operating cost) ($US/tonne)
Route
Northbound traffic
Mongolia
Russia
Total
Southbound traffic
Mongolia
Transhipment
China (Qinhuangdao)
China (Huanghua)
Total (Qinhuangdao)
Total (Huanghua)
Base
Gashuun
Sukhait
1.92
24.76
28.57
26.68
30.49
1
2
3
4
Sainshand
SS direct
Airag
Ulaanbaatar
13.83
85.24
99.07
12.76
85.24
98.00
11.52
85.24
96.76
9.32
85.24
94.56
7.44
1.00
17.94
19.13
26.38
27.57
6.37
1.00
17.94
19.13
25.31
26.50
7.61
1.00
17.94
19.13
26.55
27.74
12.41
1.00
17.94
19.13
31.35
32.54
For northbound traffic, the cost of transport is dominated by the Russian tariff of $85/tonne
(or possibly a bit less if private wagons are used). This route is therefore only viable as long
as the fob price of coking coal at Vostochnoy remains high enough to cover the land transport
cost of around $100/tonne.
Southbound traffic has slightly lower operating costs on the options via the TMR, as the
Chinese routes include a significant component representing infrastructure capital costs.
Overall, the land transport cost is about $70/tonne cheaper than via the Russian ports and
exporting via a Chinese port would therefore generally always be the first choice.
These differentials in operating cost need to be balanced against the corresponding
differentials in capital and infrastructure maintenance cost (Table 6.7). As any significant
additional tonnage on the TMR will require additional capacity, an allowance of $0.5 million
has been included in the analysis once export volumes exceed 5 million tonnes p.a.14
14
In practice, if demand on TMR is increasing quickly, the export coal will merely bring forward what would otherwise be spent
a few years later. However, a significant export volume will require duplication of the existing track at a cost rather larger than
that allowed in the table.
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Table 6.7 Alternative rail routes (infrastructure capital and maintenance cost) ($US)
Route
Base
1
Gashuun
Sainshand
Sukhait
192
343
1.8
50
0.5
2
3
4
SS direct
Airag
Ulaanbaatar
New construction (km)
400
400
Cost/km ($US mill)
1.8
1.8
Reconstruction (km)
Cost/km ($US mill)
Additional capacity on TMR(1)
Northbound (km)
876
876
752
Southbound (km)
237
237
361
Cost/km
0.5
0.5
0.5
Capex ($US mill) (excl new capacity)
Total
642
720
720
Depreciation p.a.
26
29
29
ROI p.a.
45
51
51
Maintenance cost ($US)
$4000/route-km p.a. + $0.002/ntkm
(1) Assumed to be required once export volumes reach 5 million tonnes.
530
1.8
402
711
0.5
954
38
67
The combined capital and operating costs of the various options for a range of traffic volumes
going either north or south are shown in Figures 6.1 and 6.2. The costs for the southbound
traffics are to Datong (the common point for the traffic to Qinhuangdao) while for the
northern traffics they are to the Russian border at Naushki.
The route via Gashuun Sukhait is the cheapest southern export route by around $10/tonne, for
an export volume of 10 million tonnes, reducing to $4/tonne if exports reach 20 million
tonnes p.a. By 30 million tonnes p.a. (probably the maximum for this type of single-track
line), the gap is down to $2.50/tonne. This analysis assumes that the Gashuun Sukhait line is
already constructed on the Mongolian side and there is thus no capital cost associated with
using it. The two Sainshand options (Options 1 and 2) have lower costs than the Airag route
(Option 3) as they join the TMR further south, while the Ulaan Bataar line (Option 4)
unsurprisingly has a high cost penalty for exports to China.
However, Ulaan Bataar is consistently the cheapest option for northbound exports, as its
higher construction cost is outweighed by the need for less upgrading of the TMR and the
much shorter distance with its lower operating costs.
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50
45
40
Cost/tonne ($US)
35
30
25
20
15
10
5
0
5
7
9
11
13
15
17
19
21
23
25
27
29
Traffic volume (tonnes million p.a.)
Base
Option 1
Option 2
Option 3
Option 4
Figure 6.1 Total cost – southern exports to Datong (US$/tonne)
45
40
35
Cost/tonne ($US)
30
25
20
15
10
5
0
5
7
9
11
13
15
17
19
21
23
25
27
29
Traffic volume (tonnes million p.a.)
Option 1
Option 2
Option 3
Option 4
Figure 6.2 Total cost – northern exports to Naushki (US$/tonne)
The optimum choice of route to access the TMR thus depends on the direction in which the
exports are expected to flow; predominantly northbound flows will favour the more northerly
options whilst the converse is true for southbound exports. However, for these latter, the
Gashuun Sukhait route is so superior that it is unlikely a significant volume would use the
TMR unless there were exceptional circumstances.
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East-west route via Choibalsan
A final option is a cross-country route, which extends the Airag route to use the existing 60kilometre Borondor branch and then build a new line to Choibalsan. From there, traffic can
use the existing line (which would need to be rebuilt) to access the Russian network at
Solovievsk and subsequently join the Trans-Siberian Railway. Unfortunately, although this
route saves some distance compared to using the TMR to Ulan Ude, the saving is not as large
as might be expected as the route from Solovievsk to the TSR runs generally north-west
(Table 6.8)
Table 6.8 Alternative rail routes for northbound traffic
3
Airag
Route
Distance to port (km)
Tavan Tolgoi – Russian border
Russia border – Vostochnoy
Total
Operating cost ($US)
Mongolia
Russia
Total
New construction (km)
Reconstruction (km)
Capex ($US mill) (excl new capacity)
4
5
Ulaanbaatar Choibalsan
1152
4047
5199
932
4047
4979
1465
3483
4948
11.52
85.24
96.76
400
9.32
85.24
94.56
530
720
954
14.65
76.69
91.34
1166
299
2248
The combined capital and operating cost of the Choibalsan option is compared with the Airag
and Ulaanbaatar options for a range of traffic volumes in Figures 6.3. The costs are to the
respective Russian borders, with those for the Naushki options increased by the difference
between the tariffs from Naushki and Solievski to Vostochnoy ($8.55/tonne).
80
70
Cost/tonne ($US)
60
50
40
30
20
10
0
5
7
9
11
13
15
17
19
21
23
25
27
29
Traffic volume (tonnes million p.a.)
Option 3
Option 4
Option 5
Figure 6.3 Total cost – northern exports via Naushki/Solievski (US$/tonne)
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The Choibalsan route (Option 5) is significantly more expensive until the export volume
reaches around 15 million tonnes p.a. and only becomes slightly cheaper than the Airag route
(Option 3) when volumes reach 30 million tonnes p.a. However, the Ulaanbaatar route
(Option 4) remains cheaper even at this level of traffic as the much larger capital cost on the
Choibalsan route, including the rebuilding of the existing branchlines which are used, only
generates very small ($3-5/tonne) reductions in operating cost.
6.3.8 Identification of preferred routes and timing
The analysis in the previous section shows that, whilst the cross-border routes to China are
likely to be viable at around 5 million tonnes p.a., extending the network to connect to the
TMR needs to wait until the export potential for Mongolian coal is clearer. It seems unlikely
that any significant volume of exports to China will use the TMR via Erlian unless the line is
built for other reasons but it is difficult to see what other traffics might justify construction of
a connecting line, as most other developments in the Tavan Tolgoi – TMR corridors are metal
mines generating comparatively low volumes of product which would normally be
transported by road to an existing railhead.
Whichever route is constructed, it will be better for some traffics than others. If exports via
Russia can be guaranteed and it is agreed all exports to China will use Gauhuun Sukhait, then
the Ulaan Bataar route is the best but if it is required to keep options open then an alternative
approach may be needed in which the route which gives the least penalty for a mix of traffics.
Figure 6.4 shows the cost of each route option (including the upgrading of the TMR) for a
50:50 split of traffic going north and south.
35
30
Cost/tonne ($US)
25
20
15
10
5
0
10
14
18
22
26
30
34
38
42
46
50
54
58
Traffic volume (tonnes million p.a.)
Option 1
Option 2
Option 3
Option 4
Note: Options 2 and 3 are superimposed in this graph
Figure 6.4 Total cost of options – 50:50 north-south split of traffic (US$/tonne)
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In this situation, Options 2 and 3 (which are indistinguishable on the graph) are better than
either of the extremes (Option 1 and Option 4). However, Option 3 (Airag) is more robust as,
whilst it is never the best option for either direction, it is also within about $2/tonne for both
directions, a small penalty compared to the total cost of transport to the ports. It also provides
the opportunity for future extension to Choibalsan should traffic volumes expand or if the
network structure develops to provide a more direct link to the TSR.
However, practical route selection will also need to take into account any engineering features
of these lines. The analysis has assumed the same unit construction costs for all routes and the
same operating conditions and unit costs; in practice these will need to be reviewed and
refined prior to any final decisions on route selection.
The timing of any new construction remains unclear. The distance to ports of Mongolian
exports leave them very vulnerable to changes in world prices or to unilateral changes in rail
tariffs in Russia and China. Long-term contracts would be required before any substantial new
construction would be justified, or attractive to private investment, covering not only the enduser but also port and rail access in China or Russia.
The cross-border lines are being planned as standard-gauge lines. However, it is likely that
most of the traffic using the connections to TMR will be to or from the north and these lines
should therefore be broad-gauge. If the Airag route is selected, direct from Tavan Tolgoi, Oyu
Tolgoi will not have a broad-gauge connection but it seems unlikely much concentrate traffic
would move north and any that does could easily be transported by road to a railhead at Tavan
Tolgoi; an option if traffic volumes increase is to construct a broad-gauge link between the
two.
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7. PRIVATE INVESTMENT IN MINERAL TRANSPORT
7.1 INTRODUCTION
The development of Mongolia’s strategic mines, including Oyu Tolgoi and Tavan Tolgoi,
requires electricity plants and railways costing well over $1 billion. As the Government can
finance at most about $100 million of infrastructure (electricity, transport, water services,
housing) per year in South Gobi using its own revenues, it well be necessary to mobilise
private sector investment if these projects are to go ahead. This chapter summarises potential
options for private sector investment in infrastructure and highlights key issues relevant to the
South Gobi.
7.2 OPTIONS
There are many different ways in which the private sector can be involved in the construction
and operation of railway lines (Table 7.1).
Table 7.1 Main forms of private-sector involvement in new railway projects
Train availability
contract
Train operating
concession
Infrastructure concession
Infrastructure build and
operate concession
Integrated concession
Finance and build
rail line
Public
Operate and
maintain rail line
Public
Finance and
maintain trains
Private
Public
Public
Private
Private
Public or private
Private
Public or private
(lease payments to
private)
Private
Private
Private
Private
Public or private
Operate train
services
Public or private
(hire payments to
private)
Private (pay access
charges to public)
Public or private
Public or private
(pay access charges
to private)
Private
The private sector can be involved in any, or all, of infrastructure construction, infrastructure
operation (i.e. signalling and train control), rollingstock provision and train operation through
five basic types of concession:
•
Train availability contract – examples of these contracts, where rolling-stock is
provided by a third party (who also normally also does the scheduled maintenance)
include the Roscos (both passenger and freight rollingstock companies) and the ‘powerby-the-hour’ contracts which have been negotiated with some major manufacturers. These
enable what would otherwise be large lumps of capital expenditure to be spread over the
life of the asset, as well as guaranteeing rollingstock availability and reliability.
•
Train operating concession – examples of these are the various European passenger
rail concessions in which operators either pay Government (or are paid by Government)
to operate specific services. Such operators pay access charges (normally a combination
of a rate per train-kilometre and a rate per gross tonne-kilometre) to the infrastructure
provider. In some cases, and this is the normal situation for freight, there is ‘open access’,
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i.e. an operator can operate trains without any financial payment to or from Government
by merely complying with technical standards and paying access charges
•
Infrastructure concession – where an organisation undertakes to build infrastructure
which is then leased to Government (either directly or to a Government-owned railway)
for an annual lease fee. This arrangement is similar financially to leasing rollingstock in
that it avoids having to make a large initial capital expenditure and it also greatly reduces
Government’s risk of project over-runs and delays. However, it is normally Government’s
responsibility to provide the right-of-way and to supervise resettlement. In the early days
of railways many railways were built in this way and then contracted to a neighbouring
(and generally larger) railway to operate, normally in return for either a fixed fee or for a
share of revenue, and it is possible some of the new Chinese dedicated passenger lines
may be financed in this way.
•
Infrastructure build and operate concession – where an organisation both builds the
infrastructure and ‘operates’ it, similar to the arrangements used for toll-roads. There are
comparatively few examples of such arrangements, although there is currently a proposal
for such a scheme for a new mining development in Australia.
•
Integrated concession – this is the classic form of concession which flourished in the
th
19 century. A company is given the right to build and operate a railway, normally for a
defined time period (historically 50 or 100 years) subject to certain conditions such as
tariff control, service obligations or (on the Government side) a dividend guarantee.
Recent examples include the Alice Springs – Darwin line in Australia (although this is
subject to open-access provisions) and the Saudi landbridge project.
There are a number of variations on these basic models; for example, a line can be financed
by a mine developer, even if it is built and operated by the public sector, with the cost of the
line being offset against freight revenue received from the mine.
One of the fundamental distinctions is that between railways built by an individual company
(or companies) which they intend to use to transport their own products as part of an overall
logistic chain and those which third parties can use – either using and operating their own
rollingstock or using services provided by railway operator. Many of the new railways
constructed in the last fifty years have been of the first type: examples include the Carajas ore
line in Brazil and the Mauritania ore line in West Africa. Both were built by mining
companies to transport their ore as part of an integrated mine-rail-port project (and both
incidentally with World Bank assistance). They are both effectively private railways with no
obligations to provide a service for third parties, although some informal passenger transport
is done by both of them.
However, in other cases, the railways have either been explicitly built to carry third-party
freight or it is an obligation imposed by the Government as part of the permission to construct
the railway. In these cases, which include a number of examples in Australia, as well as a coal
line in Colombia, governments have been concerned to ensure that smaller mines that cannot
justify building a railway line on their own account can be provided with access at a
reasonable price.
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7.3 RAIL NETWORKS AND ACCESS
A fundamental issue is whether, if a line is built by a particular mine, third-parties will be
allowed to transport their product on it for a reasonable charge (i.e. cost plus reasonable
profit). Many of the heavy-haul lines currently operated are solely used by the company that
built them; others, such as the Pilbara lines in Australia, have erected significant legal and
technical barriers to prevent third parties taking advantage of what appeared at the time to be
a simple requirement; still others, as in the case of Gabon in Africa, appear to severely
discriminate against third-party users15. The first decision to be made is therefore whether the
line is to be common-user and, if so, what arrangements are proposed for this to be enforced
in practice as well as in theory.
There are three broad streams of work associated with administering a rail network with
multiple users:
• Tasks associated with accreditation, licensing and safety
• Tasks associated with establishing the procedures for capacity allocation and network
management
• Tasks associated with establishing the charging framework and prices
Each of these streams of work has two phases:
• Defining the principles to be adopted
• Developing the procedures by which they will be implemented
These are normally summarised for by third party operators (TPOs) in a document which in
Europe is known as the ‘network statement’.
7.3.1 Accreditation, Licensing and Safety
This covers the following areas:
• Accreditation of the operator, to ensure he has the necessary management capacity
and financial resources
• Certification of the rollingstock, to ensure it complies with GOM standards
• Licensing of the operating staff (drivers etc) to ensure they are suitably qualified
• Ensuring that the operator will meet the necessary safety standards
All these functions would normally be seen as the responsibility of MOR (as the regulatory
authority). Safety in particular requires considerable thought. The trend in many countries is
for this to be the responsibility of the operator through the preparation and approval of a
Safety Plan, for which the senior managers are ultimately personally responsible.
It is important these regulatory functions be separated from the main operating railway, both
from the viewpoint of corporate governance but also because there will almost inevitably be
differences of opinion between it and TPOs, for example in the introduction of newer and
more innovative rollingstock. The full benefits of third-party involvement will only be
achieved if such differences are resolved independently.
7.3.2 Capacity Allocation and Network Management
These tasks are concerned with:
15
The access charge for third-party users in 2005 was ten times that for the operator, and the operator’s traffic reportedly had
priority over other users.
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•
Establishing the principles by which available capacity is distributed between the
infrastructure owner; this task is addressing medium- and long-term procedures (e.g.
grandfather rights, impact of re-timetabling etc)
• The rules governing day-to-day network operation (e.g. which trains have priority
over others under what circumstances, procedures in case of accident or disruption etc)
These are especially important where train control is in the hands of the major operator as
there is often a natural tendency to favour one’s own trains when problems arise. Experience
has shown that it is important TPOs can be confident that they will get fair treatment in such
situations and a proven way of doing this is to set down clear train control guidelines.
7.3.3 Charging structures
These tasks are concerned with establishing the charging principles, structure and prices.
There are three key issues:
• The extent to which revenue from TPOs is to be maximised as compared to volume
• The structure of charges (e.g. different charges for different types of services, basis on
which charges are made – train-km or gross tonne-km, say – or whether they are
commodity-based, as in Russia - and the conditions under which charges are levied
e.g. take-or-pay, rebates for failures by the infrastructure operator to provide the
contracted level of service etc)
• The absolute level of charges
The first of these, at least, will require discussion with GOM while the second and third will
involve discussions with potential TPOs as well as the marketing and costing staff of the
infrastructure operator. Hopefully, the work undertaken to support the Millennium Challenge
project will provide a sound basis for this.
7.4 ENCOURAGEMENT OF TPOS
Even though the regulatory and operational obstacles for TPOs may be overcome, they may
still face difficulties in obtaining rollingstock. Most rail rollingstock has a life of over 20
years, a long period to which to commit given that comparable road vehicles may only be
used for 3-5 years and then easily disposed of through the secondhand market.
A key factor where TPOs have flourished has therefore been the existence of third-party
rollingstock which can be leased or hired for periods of one or two years. In some countries
this has been through specialist leasing companies; in others (particularly Australia) through
other railways. An obvious option in theory in Mongolia is for TPOs to contract with one of
the Russian railway operators for the provision of rollingstock.
Although there are currently no rail leasing organisations in Mongolia, two alternatives that
would significantly increase the participation of TPOs for at least the medium-term are:
•
•
Establishment of a public leasing company using new rollingstock. This could also
lease to PR instead of the current practice of effectively providing free rollingstock
which is in practice financed by MOF
Establish a facility whereby any TPO who uses ‘approved’ rollingstock has the option,
after a set period of time (say 3 -5 years) of having it purchased by a public
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rollingstock company which can then lease it to either another TPO or to PR (or even
to India/Sri Lanka/Bangladesh).
Once a market has been established, this company could be either sold or liquidated, taking
care to avoid the less desirable aspects of the UK ROSCOs.
An important part of the development of track access policy will therefore be to research the
market for potential TPOs and establish to what extent and under what conditions they are
prepared to fund rollingstock themselves.
7.5 OTHER ISSUES
Other issues to be considered include whether any line that is constructed by a private
company will eventually revert to the state (either at the end of the mining lease or after some
more general time period) or whether ownership of the line will continue in perpetuity. This is
often linked to who is developing the line: if it is a mining company then the life would
presumably be linked to the mining lease but if it is an independent body or consortium then
the life would generally be related to the presumed life of the infrastructure (50 years in the
case of one Australian line).
If the line is to be handed back, then the handback arrangements need to be clearly stated, as
well as the conditions under which the government can step in and takeover if the
concessionaire is not performing as required (as happened in Colombia). To do this
successfully, governments must have lawyers at least as good as those acting for the
concessionaire and must also have a monitoring procedure with is non-intrusive but
observant.
The process of tendering, concessionaire selection and negotiation of railway concessions are
similar in those in other sectors. Care must be taken to ensure that the concessionaire is
financially and technically capable of performing his obligations; this has often been a
problem in railway concessions, especially where the concessionaire is not linked to a user of
the railway. This is especially so if the Government is contributing a significant share of any
capital expenditure as there is often pressure to ‘get the project moving’ while the
concessionaire organises his finances (as happened in Colombia).
Once the line is in operation, interface arrangements with other operators will need to be clear
and straightforward. In the case of the Gobi mines, will they be able to run their own trains
over the existing Mongolian network (and then onwards over the Russian network?). Will the
existing Mongolian network be upgraded to accept 25 tonne axle-load wagons (probably the
minimum that any new line should be constructed to) – and if so, when? What will the
charges be for on-carriage and so on.
Developing a concession is often a lengthy process. Few have been arranged in under two
years from project concept to agreement; many have taken far longer. In doing so, almost all
governments need advice from experts experienced in this type of transaction;
concessionaires, many of whom will themselves be experienced, will be obtaining the best
advice they can, both locally and internationally. IFIs have often played a useful role; several
of the major world mineral railways were partly funded by IFIs and their corporate experience
can help to ensure any process is both transparent and in the best interests of the country as a
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whole. And finally, organising and completing a transaction is not cheap; few will have been
done without at least a million dollars having been spent on transaction advisors of one sort or
another.
7.6 POTENTIAL FOR PSP IN SOUTH GOBI
The potential for PSP in the rail network in South Gobi ranges from very good to negligible.
The most important thing for an investor in infrastructure is the reliability of the traffic
forecasts. The lines linking the proposed mines with the industrial complexes just over the
border in China will be carrying traffic that is subject to long-term contracts. Whilst the
recent fluctuations in commodity prices have shown that such contracts cannot be relied on
absolutely, they are the closest thing to certainty that the mines are going to experience,
especially if the industrial complexes themselves have a stake in the mines. For many of the
plants in Gansu and Nei Monggol, Mongolia is the closest and cheapest source of their inputs
and this also provides some reassurance that substantial traffic volumes can be expected in the
long-term.
The lines linking the mines to the existing Mongolian network unfortunately are unlikely to
have any such long-term guarantees. Exporting coal through Russian orts must overcome two
uncertainties: firstly, the inherent uncertainty of the international market in which, for
practical purposes, Mongolian coal will be competing against Chinese, Australian and
Russian coal for the Japanese and South Korean markets; secondly, the uncertainty of
exporting through Russia, which has shown several times in recent years that it is prepared to
use energy as a political weapon.
Whilst it may be possible to interest some local businesses in lines connecting the mines to
the existing network, it seems likely that any such interest would require some guarantees
from the government. The other option is to interest some of the Russian resource companies
in the South Gobi mines.
It is important that any lines that are built allow access to third parties at a reasonable rate.
Whilst Tavan Tolgoi is clearly large enough to justify a line in its own right, other mines with
a production capacity of, say, 2-5 million tonnes p.a. will not be and will naturally use road.
At the margin, this will mean that there will be small mines which will not be developed
unless they can obtain rail access and it is thus in Mongolia’s national interest to ensure this is
so.
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8. TRANSPORT INFRASTRUCTURE DECISION
FRAMEWORK
This chapter presents an outline decision framework (Table 8.1) for developing transport
infrastructure within the South Gobi, based on the analysis and discussion in the previous
sections.
Table 8.1 Outline decision framework
Issue
Decision
Comments
Determine threshold volumes above
Road access to new
Privately-funded as far which access roads must be sealed to
preserve environment.
mines
as public network
Specify construction standards
Volume limit will depend on level of
Allow up to specified
other usage. Loading should be enforced
Use of public roads for volume subject to
at corporate level. Charges must be
loading standards and
hauling product
sufficient to cover long-run maintenance
charges
and renewal costs
Require access to third parties under
specified conditions. Develop standard
Rail access to new lines Allow
procedures and charging methodology.
Specify handback requirements.
Undertake marketing and operations
study to establish long-term potential for
export to Russia. May require
commercial agreement with RZhD and
Allow if privatelyports to obtain reduced long-term access
financed. Otherwise
and rate for export coal transitting from
Connection to TMR
defer until there is clear
Mongolia. As China appears to currently
evidence of long-term
have $70/tonne advantage, a better
demand
option may be to develop alternative
customers in China; the ownership of the
connecting border lines in China should
be monitored.
Any Government funding should be
restricted to the Tavan Tolgoi –
Connection between
Allow if privatelyDalanzadgad section and only
Ovoot Tolgoi and
funded.
considered after a connection to TMR
Tavan Tolgoi
has been constructed.
Connection to
Monitor progress of proposed Chinese
Long-term option only
Choibalsan
line through Choibalsan
Initially, most new mines will use road to transport their product; this will involve privatelyfunded mine access roads with subsequent use of the public network. The private roads
should be sealed once volume reaches a minimum value to minimise environmental damage
whilst use of the public road network should be subject to specified loading standards and
road maintenance charges. These requirements should be enforced on a regular basis to avoid
long-term damage to the pavement structure.
Rail line connecting the mines, either cross-border or to the main network, should be
privately-funded but should be required to provide access to third parties who may desire it
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under standard procedures and charges developed by the regulatory authority. Any agreement
for line construction should specify handback arrangements and the conditions under which
the government can step in if the operation of the line is prejudicing the interests of other
users.
If a private investor is prepared to finance a connection to the TMR, it should be allowed
subject to the same conditions as for mine connections. Otherwise this connection should be
deferred until there is clear evidence, e.g. through a marketing and operational study, that
there is sufficient demand for the long-term export of coal through Russia (e.g. if a major
Russian producer invested in the Mongolian mines). Any investment by the Government in
the connecting line should be kept to a minimum (e.g. it might reflect the share of general
traffic) and arrangements should include charges for any upgrading to increase the capacity of
the TMR.
The link between Ovoot Tolgoi and Tavan Tolgoi appears to have little traffic potential and
should only be considered after a TMR connection has been established. Any Government
contribution to funding should be limited to the Tavan Tolgoi – Dalanzadgad section only.
The route via Choibalsan appears a long-term option only and is also subject to the same
general caveats as the TMR connections.
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