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Friday, February 10, 2012

Mongolia coal rail plans delayed on financing issues

Fri Feb 10, 2012

ULAN BATOR Feb 10 (Reuters) - Mongolia's ambitious plan to build a railway network capable of delivering its surging coal output to foreign markets is likely to be delayed as a result of financing difficulties and bureaucratic deadlocks, government officials said on Friday. Purevbaatar Luvsandavag, vice-chairman of the Mongolia Railway Authority, told Reuters on the sidelines of the Coal Mongolia conference in Ulan Bator that the government had not even raised the $50 million required to fund a series of feasibility studies and project designs drawn up last year.

"We still don't have permission from the government to announce an open tender to build the railways, and in general there is still a deadlock when it comes to funding and building infrastructure," he said.
He said the government had sought funding for the projects through overseas equity markets, instead of the railway authority's preferred option involving public-private partnerships with investors from Japan and South Korea.

J. Bat-Erdene, state secretary at Mongolia's transportation ministry told the conference on Thursday that the government was planning to list 49 percent of state-owned Mongolian Railway Corp on the domestic stock exchange to raise funds for construction. Mongolia is experiencing a mining boom that is expected to transform its tiny economy in the coming decade, but it has so far struggled to monetise its copious mineral reserves and needs to spend billions of dollars on developing a transportation network capable of reaching consumers.

The government is also wary of the geopolitical and economic risks of being overly dependent on its giant southern neighbour, China, even though it has a guaranteed market for copper and coking coal. Mongolia exported 22 million tonnes of coal in 2011, with virtually all of it delivered south to China at more than $25 per tonne lower than the international average.

It plans to build an extensive cross-country railway that would eventually connect its huge Tavan Tolgoi coal project in the south Gobi desert to the rail networks of Russia, giving it access to markets in Japan and South Korea, but critics have said the route is not economically feasible.

The government remains reluctant to give permission for Mongolian Mining Corp (MMC) to construct its own 267-km private railway into China, saying a pre-existing route into China would make it more difficult to attract financing for the route east into Russia. An MMC official told Reuters the company was "still waiting" for the project to be approved.

Construction on the two routes -- east into Russia and south into China -- is expected to begin at the same time, but Baasanjav Enkhbaatar of the World Bank's mining infrastructure investment support project told the conference that neither project was likely to begin before 2017.

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