2014/09/05

Railway modernization and expansion deal signed - End to long dispute?


On September 3, during the course of the Russian President V.Putin's 5-hour working visit to Ulaanbaatar, Mongolia and Russia have agreed on a strategic partnership for the modernization and development of railway infrastructure in Mongolia. General public received the news as it may be an positive end to a long-disputed new railway development project.


The agreement, one of 15 agreements were inked during Putin's visit, was signed between Russian Railways and the Ministry of Roads and Transport of Mongolia outlining a strategic partnership for the modernization and development of Ulaanbaatar Railway (UBZD).

Vladimir Yakunin noted a consistent course in the development of Ulaanbaatar Railway and the railway infrastructure of the entire country in the interests of mutual cooperation. The most important condition of this partnership will be the agreement signed between Russian Railways and the Ministry. Thanks to the joint efforts of both sides, UBZD broke even, upgrading and replacing its entire locomotive fleet.
The president of Russian Railways Vladimir Yakunin emphasized the importance of further developing 1520-mm rail by Mongolian authorities, noting that constructing infrastructure using other standards (Chinese narrow gauge) will lead to the unnecessary duplication of services and an increase in operating costs.

Mongolia approved its own state policy on railway transportation by majority vote at State Great Hural (Parliament) on June, 2010. The policy document directed the public and private partnership must build broad gauge rail tracks within the territory of Mongolia that could be linked to the central railway line, but it did not limit the rights of the private companies to build narrow gauge rail line at the permission of Government to closest Chinese border that will not be further linked to the central railway line. General public seems to have strong resistance over private companies' tensions, that were backed by the Government, to draw narrow or Chinese standard rail tracks to Chinese border from the southern Mongolia's mineral basin area, known for rich in coal, copper, gold and other minerals.

Kh.Battulga, an influential leader of the ruling Democratic Party, a member of Parliament and once a former Minister of Road and Transportation, who is an author of the state policy on railway transportation, has strongly resisted construction of Chinese standard rail line directly to border, instead he suggested his master plan to build mineral processing industrial park in Sainshand that will further be linked with major mineral deposits with broad gauge rail tracks and be exported to third countries through Far Eastern port cities. During his term in office not only as Minister of Road and Transportation but also during as Minister of Industry and Agriculture, he gave strong push to the new railway construction project to kick off its eastbound direction, but it did not much succeeded. Only few kilometers of earthworks were made.

The goal of the agreement is the strategic development of Ulaanbaatar Railway to ensure growth in the export and transit of goods and strengthen its role in the Eurasian transport and logistics system.
According to the document, by March 1, 2015, the parties will agree to terms of reference and determine specialized engineering companies to conclude the agreements with Ulaanbaatar Railway for the preparation of investment feasibility studies, including market research, financial and legal models, and a feasibility study on construction projects and the modernization of the railway infrastructure in Mongolia.

The main projects being considered include the centralized modernization and development of the route Sükhbaatar–Sainshand–Zamyn Üüd (1100 km), including the electrification and/or construction of a second track; the northbound construction of the Erdenet–Ovoot railway (545 km) from the perspective of developing the mining industry of northwestern Mongolia; and the construction of the Ovoot–Arts Suuri route (215 km) with access to Russia and contiguity to Kyzyl–Kuragino. In the west, a railway line linking Russia and China through Mongolia to export from Russia to China, India, Pakistan, and other countries in the region will be developed, and in the east the possibility of using the Choibalsan–Ereentsav railway section (239 km) from the perspective of transit to Khut–Bichigt is being considered.
The new railway corridor talked here was to draw new rail line from current railway infrastructure already existing in Mongolia-Russian joint venture Erdenet copper mining company to westwards till Arts Suuri border point in Zavkhan province that will further be linked to Trans-Siberian railway via four major coal deposits near Kyzyl, capital of Tuva Republic. In the middle of Erdenet-Arts Suuri, there is Ovoot coking coal project, 100% owned by Austrialian-listed Aspire Mining Limited. Aspire Mining has already established Northern Railway LLC, Mongolian registered rail infrastructure subsidiary. Northern Railways is in charge of the advancement of an extension to the existing railway of approximately 545 kilometers from the current terminus at Erdenet through to the Ovoot Coking Coal Project.

The agreement also reflects the interest of parties to work with China to build up traffic from Russia to China in the opposite direction using Ulaanbaatar Railway, which includes the development of competitive tariffs and technological conditions for such shipments.

Mongolia hopes that outcomes from this signing ceremony would be not only to increase Russian transit freight to China, via Mongolia’s rail network up to 20 million tons per year by 2020, but also to build corridor for Mongolia's long-awaited master plan to process and export its minerals to a third country. Furthermore, Mongolian railway operator hopes that dual tracking of the main railway that were discussed would lift current capacity to 100 million tons per year, and in addition, examine the feasibility of electrification of this line.



Ulaanbaatar Railway, Mongolia’s rail network operator, was created June 6, 1949, on the basis of an agreement between the governments of the Soviet Union and the Mongolian People's Republic with an equal distribution of shares in the company (50/50). Until July 2004, the powers of shareholder on behalf of the Russian Federation were held by the Ministry of Railways of Russia; then, by Russian Federation Government Decree of July 30, 2004, no. 397, shareholder powers were transferred to the Federal Agency for Railway Transport.

Since 2009, the key performance indicators of Ulaanbaatar Railway have significantly improved: there have been increased turnover and positive financial results. Today, the share of rail transport accounts for over 60% of freight traffic in Mongolia. The length of the Ulaanbaatar Railway is 1815 km.

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