Erdenes Tavan Tolgoi was facing financial difficulties because of the low-selling price on the agreement with Chalco. The mine also contributes largely to the state-budget. Therefore, it was one of the many causes of economic slowdown in Mongolia.
Business-Mongolia.com is delivering the translation of an interview with Mr. Gankhuyag D, Mining Minister of Mongolia, on Ardchilal newspaper.
– Previously you have mentioned that instead of exporting coal directly, it will add value if we process and wash the coal before exporting?
Coal price is very volatile in the world market. Semi-processed or raw both have very high volatility. However, washed and processed coal has a relatively stable market price.
State-budget depends upon the operations of companies and its’ tax contribution. Therefore, we need to manage the volatility. We took two measurements to address the issue. The drop in the commodities, coal 15-30%, irone ore 50%, copper 10%, had effected the national economy.
Also, last year was a presidential election year for the United States, and its’ government defined their policy for the next 4 years. In China, their new leaders are also defining their policy for the next decade. They have expressed that they will establish mutually beneficial cooperation and invest its neighbors and for more stable economic growth. As for us, the transportation has always been the bottleneck. We transport coal by trucks and unload them on the border port. We need to resolve and speed up the railroad construction that has been around for 4-5 years. Australia is the leading coal exporter to China. The transportation cost is one-fold greater to export coal from Mongolia, creating a demand to resolve this problem quickly. On the other side, we need to increase the level of washing and processing operations of the mines. The washed coal is the preferred option.
-There has been an speculation that China is not importing Mongolian coal due to the Chalco – Tavan Tolgoi Agreement. Would you like to comment on that?
It is hard to say that Chalco is entirely state-owned enterprise. 40% of the company belongs to the state and the rest is privately owned. However, the parent company of Chalco is entirely owned by the state. We met Chalco directors last Friday, progress was made, we agreed to decrease the transportation cost, and quote exporting prices of minerals based on exchange or border port prices. We also agreed to solve the transportation issues in the near future and develop a mutually beneficial cooperation. We also agreed to think of our producers and miners when the market is in a difficult situation and so forth to secure our market.
– Does this mean that the accumulated coal is being exported? If so, what is the price?
Export has been resumed by the Gashuun Sukhait border port price.
– It has been stated that Chalco agreement determines the coal price $70 when the market price $100. Does it mean that we are changing the price without amending the agreement?
We agreed to be transparent about the cost to the final buyer, profit of the middleman, production and transportation costs, not only on the coal agreements.
– Is the government taking measures to ease the upcoming economic difficulties in the coming fall?
We are envisioning the economy will be stabilized. When the “reform” government was established the state-budget was in 1 trillion MNT deficit, and Human Development Fund was in debt of another trillion MNT. Therefore, we issued the “Chinggis” bond after predicting the economy will face some difficulties. Soon the construction and development will begin in all of sectors of the country. The government is supporting to boost these developments, so I think the economic downturn is unlikely.