Concerns rise as fuel supply falls

The shortage of oil products experienced in the Russian Federationdirectly influenced Mongolia which relies on Russia for its domestic oil needs. Due to the shortage of diesel fuel, diesel fuel is sold with limits, there has been a consistent long queue and it burdened the normal activity of public transportation, railway and road maintenance works.
On May 27, Ulaanbaatar Railway transferred to an economical condition that limited operations allowing only passengers and transporting coal for thermo-power stations, and foods, closing some directions temporarily. After June 3, it returned to normal activity. Mining companies halted their activities and about 30 percent of buses for public transportation were stopped. As a result, public transportation companies raised their fare by Tgs100-200. Some road maintenance works in Ulaanbaatar stopped , even though roadwork companies are being distributed diesel according to a schedule made by the Oil Authority. Fortunately, a relevant agreement was earlier established with oil importing companies for spring sowing and there has not been any trouble in spring sowing. However, diesel is being distributed for planting vegetables and potatoes and family farmers with permission of soum governors.
N. Boldkhuu, deputy head of Fuel Policy of Minerals and Energy Ministry, said that citizens’ extra reserve of petroleum than their needs makes artificial shortage. Profiteering by selling diesel fuel at higher cost occurs. A liter of diesel fuel costs Tgs3000-4000 in rural areas.
In connection with a decrease in the fuel reserve, Minerals and Energy Minister and relevant officials went to Russia and China and are making talks with oil companies. Minerals and Energy Minister D. Zorigt said,“We agreed to import 37,000 tonnes of diesel fuel from Rosneft Company of Russia within June. The cost for 15,000 tonnes of which has been settled and we will soon negotiate the cost of the remaining 22,000 tonnes.
The abovementioned volume of diesel fuel is not sufficient to provide domestic needs; therefore, we ordered more diesel from other companies. We believe the situation will stabilize by late June or early July because it will take some days until Russia builds-up its diesel provision. However, Mongolia’s companies whose activities were stagnant can reinstate this week. For instance, public transport companies, thermo stations,railway and mining companies started operating normally. Also oil importers started distributing diesel fuel to card-holding users. Some petroleum stations that were closed re-opened.
From this week, diesel will be distributed to users with cards.
Specialists who study Russian market said that it will take nearly two months until Russia completes recovering its fuel shortage. So we believe it will be normal by July.”
As a result of the visit to China, an agreement on 3,000 tonnes of fuel was made and is now being loaded. More talks are being made with relevant companies to add 7,000 tonnes. “In actually, we agreed with China to purchase 10,000 tonne of fuel every month. The volume of the fuel agreed with China connects with the capacity of transfer facilities in Zamyn-Uud, Mongolia. This year, it intends to continue building enlargement for a terminator to load in Zamyn-Uud with an investment of the State Budget. Works that were done last year will be continued this year.
Government considers to reflect Tgs30 billion in the budget adjustment for building an oil reserve.
Moreover, Tgs60 billion will be reflected in the budget for setting up containers to reserve fuel. The feasibility study and planning for the construction to reserve fuel have been made before. It can be built in accordance with the study,” said D. Zorigt.
China’s oil products are more expensive than Russia and currently, the commercial price has not settled.
Every time Russia changes its import duty on oil products, Mongolia’s government makes monthly adjustments to its customs and excise duties to hold petroleum prices stable. Currently, Russia’s provision of oil products along border areas is insufficient; therefore, the transport cost of oil products rises “Rising transportation costs influence petroleum prices. We cut all kinds of duties on oil products to zero. But it is impossible to recover the cost of its price and price is going up. It may continue until the situation and oil provision becomes normal. We often exchange views with oil importers. Unfair Competition Regulatory Authority controls the prices of oil products. The price issue will be discussed after the situation becomes normal,” said Minister D. Zorigt. There is a rumor that Russia may restrict its supply of AI-92 petroleum, the Minister explained, “Russia is short of AI-92. We are holding talks on this issue even today.” The shortage of oil products demonstrates the necessity to quickly build an oil refinery in Mongolia.
The MPP Group in parliament heard reports on building a reserve of oil products from Minerals and Energy Ministry and Oil Authority officials They criticized them for being too slow-moving on the issue to establish an oil refinery and gave an assignment to make a certain plan on this issue.
An issue to establish an oil refinery which can provide the eastern zone with oil products becomes a priority.
“The Ministry will resolve issues for three refineries. By June 20, the foundation for the first refinery will be laid. Preparation work to build an oil refinery in Zuunbayan that can process 300,000 tonnes of oil every year is underway. Another refinery capable to process 121,000 tonnes will be built in Choibalsan. Moreover, a refinery capable of producing 200,000 tonne is intended to be built in Ulaanbaatar.
They are expected to be complete by 2012-2014. By doing so, up to 50 percent of total domestic needs of Mongolia can be provided,” said N. Boldkhuu, deputy head of Fuel Policy of Minerals and Energy Ministry.
source: 'The Mongol Messenger' newspaper


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