Ulaanbaatar Railway Company (UBTZ) is a truly obsolete enterprise today. The joint venture owned by Mongolia and Russia (with equal shares) is not a business, but an autonomous, socialist mini-state. Its operations are governed by an agreement established 67 years ago between two socialist countries, rather than being regulated by Mongolian legislation. UBTZ currently manages 50 percent of Mongolia’s freight transport and one fourth of passenger transport. However, they do not pay any taxes to the government and run huge deficits every year.
The need to change the agreement established in 1949 is raised every time the government’s authorities meet with UBTZ management. However, nothing has been done. The last of those meetings was held in Ulaanbaatar last week when the new Prime Minister had a meeting with Oleg Belozyorov, the new head of Russian Railways. Besides repeating the same line on making amendments to the 67-year-old agreement, they had a discussion on waiving diesel import taxes for UBTZ and talked about the need to use the UBTZ corridor for Eurasia’s freight transport.
WHY SHOULD UBTZ BE EXEMPT FROM TAXES?
The length of Mongolia’s railway tracks is around 1,800 kilometers, 1,100 of which are the main network connecting Sukhbaatar Port at the northern border to Zamiin Uud Port in the south. The rest, about 700 kilometers, are auxiliary tracks. A total of 320 entities and 15,343 employees work to maintain these tracks. There does not need to be such a huge number of people working on these tracks, especially when they are not that long. For example, only about 10,000 people manage Canada’s 55,000 km of railway. They are managing railway tracks 50 times as long as ours with a workforce that is as big as 70 percent of UBTZ’s. If UBTZ worked with the same efficiency, they would only need 2,000 people.
The reason why over 15,000 people are employed at UBTZ can be seen from its organizational structure. An example is that the areas of responsibilities of a Deputy Director of Labor and Social Affairs includes administrative services, human resources, social care (including commercial centers in Zuunkharaa and Sainshand, Gan Zam Hotel, and Jinchin Center in Zamiin Uud), the University of Transport, technical training centers, auto services, Gan Zam printing company, a song and dance ensemble, a construction department, UBTZ Central Hospital, Bayanbuural Resort, and more. They still have these social services that only exist in independent, socialist countries. It is no good for passengers if a ship sinks because of excessive weight due to overcrowding.
It looks like the Warsaw-based Organization for Cooperation of Railways dictates and sets the prices of UBTZ services high. This organization was first established by socialist countries, most of which have already left. Only a few countries, such as Russia, China, Mongolia, and North Korea, have stayed on as members, and some were almost forced to. The organization set the cost of Mongolia’s railway freight transport at 28 cents per kilometer, which is 30 percent higher than the international rate (20 cents). All prices should be regulated by the market, rather than the government or an international organization. This way, the deficits will be limited and competitiveness is developed.
UBTZ is currently using loans to pay employee salaries. Over 40 percent of their operational expenditures go to UBTZ’s locomotives, which only consume diesel fuel. Therefore, the current parliament made diesel fuel exempt from special import tax (approximately 36 billion MNT a year). If this was so important, why wouldn’t Russians reduce their supply price for the joint venture? UBTZ authorities should be working with their Russian counterparts.
Unless UBTZ transitions to free market principles and stops its old ways of doing business, it will keep constraining Mongolia’s development and never be able to stop its bear service Russians refer to incapable, obsolete services that end up being more costly and bringing about negative consequences rather than doing any good. as “bear” services.
CAN UBTZ BECOME PART OF THE TRANSPORT CORRIDOR?
Lately there have been many initiatives, proposals, and discussions on building transport, commercial, and logistics hubs connecting Asia and Europe. China’s One Belt, One Road, and Mongolia’s Steppe Road are examples of the active discussions going on. No matter what the name is, the cheapest, shortest route connecting Russia and China, and Asia and Europe, is Mongolia’s railway that goes over a relatively even surface. Do the existing single-way railway tracks that go up and down the hills serve the desired purpose of the transport corridor? Can we add to the speed and capability of these tracks even if we introduce an electric system or do double tracks?
We have not made any major changes to the railway tracks that were built by prisoners, not technical workers, 70 years ago. Since it is a single-way track, one trian has to wait at a junction if two trains are going in different directions. The average speed of Mongolia’s railway is extremely slow. When we were students in Russia, they used to send us there on trains. When one of was late getting the train in Ulaanbaatar, they simply drove to Darkhan and joined us there. Back then, traveling between Darkhan and Ulaanbaatar by train took twice as long as taking a car. Now, traveling by car has become four times more efficient. At some locations, people who are sitting at the head of the train can see those who are sitting at the end of the train. That is how curved the routes are, and it still has not changed.
Railway tracks must be straight and even to ensure safety, low costs, and increased efficiency. Therefore, we should talk about high-speed transit railways with the knowledge of what UBTZ looks like today. Our railway tracks need to at least be electrified and have two-way movement before thinking about meeting the demands of our neighboring countries. It is time for us to decide whether we rebuild UBTZ’s obsolete railway tracks or construct a new network.
HOW SHOULD WE CHANGE RAILWAY TRACKS TO BETTER BENEFIT MONGOLIA?
First of all, the transit railway track, which currently blocks city traffic on a regular basis, should be built around Bogd Mountain. This track should be built without UBTZ’s involvement. After its commissioning, UBTZ should collect user fees.
Mongolia’s corridor could go to the north with broad gauges, and to the south with narrow gauges. We should build logistics hubs within the country, so that we have a place to provide loading services when trains need to change gauges. Mongolians have the opportunity to build a double-gauge railway connecting three corridors and collect fees from neighboring countries. In my column titled “Mongolia is the Next Panama” published three years ago, I wrote that a Ж-shaped railway network is the best option in terms of economy, geopolitics, and the interests of the superpowers.
If UBTZ cannot develop and reform itself, it is time to pass the opportunity on to others. They are like a dog lying on grass – not eating the grass, but protecting it from others who would.