Mongolia faces critical diesel shortage

By Simon Rabinovitch and Leslie Hook

Mongolia is running critically low on diesel after Russian deliveries failed to arrive, a development that threatens to crimp mining activity in the resource-rich country.

The Mongolian government has ordered a temporary halt of diesel supplies to some miners and has dipped into its emergency stockpile, according to Mongolian state media. In the capital of Ulan Bator, public bus fares were raised by 33 per cent.

The shortage reflects how oil supply troubles in Russia are spreading to neighbouring countries after Moscow recently slapped a prohibitive duty on petrol exports. China this month also banned diesel exports as stubbornly high crude prices threaten domestic supplies.

The diesel shortages in Mongolia have already affected the booming sector. Enebish Baasngombo, executive director of Erdenes MGL, the company developing Tavan Tolgoi – Mongolia’s flagship coal deposit, which is expected to have an initial public listing early next year – said operations had seen “some” impact from the shortage.

Another person familiar with the situation said there had not been an immediate impact on mining activities at Oyu Tolgoi, a large copper and gold deposit operated by Rio Tinto and Ivanhoe, but said mine operators were in discussions with the government to ensure adequate fuel supplies.

The Mongolian government expressed confidence that a solution would soon be found. But the shortfall comes at a difficult time, with diesel demand from construction, agriculture and mining peaking during the temperate summer months when temperatures are high enough to allow people to easily work outdoors.

Zorigt Dashdorgj, minister of mineral resources and energy, said that Mongolia was talking to China and Russia to secure additional supplies of diesel.

“By the end of next week, things will be back to normal,” said Mr Zorigt. “The Russians are working very hard … to make sure that Mongolia receives diesel in an amount that can satisfy the needs that we have.”

Highlighting the scarcity, SouthGobi Resources, a company listed in Toronto and Hong Kong, this month said its fuel supplier had declared force majeure after the cut in Russian exports. Drawing on its own reserves and an alternative supplier, SouthGobi said it would be able to continue normal operations for roughly 45 days.

With SouthGobi’s mine a short distance from the Chinese border, customers are able to fuel their trucks in China, pick up coal and drive it out of Mongolia without needing additional diesel, an official said. But the Tavan Tolgoi area is much further inland and delivery trucks would struggle to make it in and out of the country without fuelling up.

Faced by fuel shortages of its own, Russia, the world’s largest oil producer, raised a fuel export tax by 44 per cent this month. Vladimir Putin, prime minister, has criticised Russia’s oil groups, saying there was no lack of oil but that companies had restricted supplies to keep prices high. Mongolian President Elbegdorj will visit Russia from May 30 on a prescheduled official visit.

Source:Financial Times



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