The transport of coal from the Tavan Tolgoi mine to Gashuunsukhait, the site of the 120 kilometer truck logjam, has been indefinitely suspended by the decision of the Minister of Mining and Heavy Industry D.Sumiyabazar.
The transport of coal for Erdenes Tavan Tolgoi, Tavan Tolgoi JSC, and Energy Resources LLC will be affected by the decision. As of right now, it is unclear for how long the suspension of transport will continue for.
State-owned Erdenes Tavan Tolgoi has said that transport will resume once the 120 kilometer queue has been addressed. According to Erdenes TT, the decision will likely not affect sales of coal and even if it did, it is possible to make up sales later.
Energy Resources LLC has stopped its transport of coal from the Ukhaa Khudag mine. The company sells washed and processed coal for 150 USD per ton. Due to the logjam, Energy Resources LLC has reportedly amassed a stockpile of more than 400,000 tons of processed coal, worth around six million USD. It is probable that the stock price of Mongolian Mining Corporation, which Energy Resources LLC is a subsidiary of, on the Hong Kong Stock Exchange is likely to fall.
Many now believe that the official state visits of President Kh.Battulga and Prime Minister U.Khurelsukh will be crucial to alleviating the issue of the logjam at the border. Foreign Minister D.Tsogtbaatar made it clear during his recent visit to China that the Prime Minister is keen on paying a state visit to China in the near future. Even though state visits are usually planned six months ahead, PM U.Khurelsukh has said that he is eager to pay a state visit in January 2018.
Minister of Roads and Transport J.Bat-Erdene is set to accompany the Prime Minister in his visit to China. J.Bat-Erdene will again visit the site of the Gashuunsukhait border crossing in order to start negotiations on automating the operations of the customs at the crossing in order to expedite the process of loading and unloading coal.
However, it remains unclear if a visit by Prime Minister U.Khurelsukh will have any significant effect. It has become an open secret that the current President’s anti-Chinese rhetoric and statements made during his campaign led Beijing to deliberately limit the import of Mongolian coal. The Chinese side has not confirmed this theory as they cite security concerns of contraband imported from Mongolia.
The closest high-level meeting that President Kh.Battulga will likely participate in is the Shanghai Cooperation Organization Summit taking place on June 9 in Qingdao, Shandong Province of China.
Export statistics in 2016 show that Erdenes Tavan Tolgoi accounted for 30 percent of all coal exports while Tavan Tolgoi JSC accounted for 15 percent and Energy Resources six percent. Overall, 55 percent or a little over half of Mongolia’s coal exports come from the Tavan Tolgoi mine and through the Gashuunsukhait border crossing.
Recently, Cabinet tried to take certain measures to stop the damage but to no avail. A decision was made to reroute coal from Tavan Tolgoi to Tsagaan Khad zone before shipping it to Gashuunsukhait. Minister of Mining and Heavy Industry D.Sumiyabazar has stated that this decision will help to decrease the logjam of trucks at the border.
Coal mining companies operating at Tavan Tolgoi mainly export coal through Gashuunsukhait border crossing. In the first three quarters of 2017, Mongolian Mining Corporation exported 2.8 million tons of washed coal.
Tavantolgoi JSC exported approximately three million tons of coal, accounting for 13 percent of Mongolia’s total mining exports. State-owned Erdenes Tavan Tolgoi has exported 7.5 million tons of coal in the first 10 months of 2017.
According to the Ministry of Mining, mining exports accounted for 78.8 percent of Mongolia’s total exports. Exports increased by 1.5 billion USD compared to last year. From the increase, 1.3 billion USD was due to coal exports. As a result of the significant increase, coal was one of the major driving forces in the recent revival of the Mongolian economy.
In November 2017, Fitch Ratings agency said that the Gashuunsukhait logjam would likely not derail economic recovery.
“The customs bottleneck introduces both downside and upside risk to our forecasts, but is unlikely to derail the recovery given that coal export volumes remain well above their 2015-16 monthly average even at reduced throughput levels, and other key exports, such as copper, are only modestly impacted,” Fitch said.
The prospect of a complete shutdown of coal exports from the Tavan Tolgoi mine is detrimental to the positive signs and developments that have been observed in the economy. While potentially damaging, for the moment, the decision of the Minister of Mining seems to be the correct move as the once 100 km queue begins to increase to 130 km in the middle of winter.
The reality of the situation is that the issue will most likely only be solved through negotiation and compromise with the Chinese side. It remains crucial for the Mongolian government and especially the President to prioritize this issue.