With renewed backing from international lenders, Mongolia is moving ahead with plans to broaden its logistics base and improve access to export markets, with a raft of transport infrastructure projects shifting into gear.
While a slowdown in the global commodities market is expected to see GDP more than halve from 7.8% in 2014 to 3.5% this year, according to the IMF, Mongolia’s drive to boost exports, tourism and trade has kept the funding of key transport projects on track.
Rail and aviation projects are seen as particularly pivotal for increasing the country’s logistical capacity, with construction firms set to benefit throughout the development stage.
Rail projects gathering pace
Mongolia has pledged to invest heavily in an upgrade of its rail network, which is expected to boost the country’s exports – particularly of coal – with China earmarked as the lead recipient.
Approval has been secured for construction of a 267-km rail line from the Tavan Tolgoi coal mine, which is being developed in the south of the country, to Gashuun Sukhait on the border with China. The line will allow coal from the mine to be transported directly by rail to markets in China, rather than by truck, achieving significant cost savings.
N. Tumurkhuu, minister of roads and transportation, told press earlier this year that logistics account for more than 60% of the per-tonne cost of transporting coal to China. The new direct rail link could reduce logistics costs by as much as 50%, according to local media reports, while also cutting down on pollution and improving the longevity of the road network.
A second Tavan Tolgoi rail project could also be in the cards, thanks to Japan’s ambitions to challenge Chinese investment in the region. During a recent visit to Mongolia, Japan’s prime minister, Shinzo Abe, affirmed that Japan had a key role to play in developing infrastructure in Mongolia and Central Asia to foster greater connectivity.
Japan was the country’s largest foreign donor in 2013, according to figures from the OECD, accounting for 37% of all assistance received that year. However, this stands in contrast to the most recent export figures, as Japan accounted for just 0.4% of Mongolia’s exports last year, compared to the 87.9% that were directed to China.
In late October the two countries inked a series of infrastructure deals, including a memorandum of understanding paving the way for Japanese firms to take part in the construction of a second rail line that will help connect Tavan Tolgoi to eastern export markets, such as Japan and the US.
The Tavan Tolgoi East Line, which is to be developed separately from the rail link to the Chinese border at Gashuun Sukhait, is expected to run some 1300 km, according to Mongolia’s prime minister, Ch. Saikhanbileg, though greater detail about the proposed route of the line – which would likely have to pass through China or Russia – has yet to be released.
With estimated reserves in excess of 6bn tonnes, the Tavan Tolgoi mine could prove to be a useful alternative energy source for Japan, which remains mired in a nuclear power debate following the accident at the Fukushima plant in 2011.
Airport to boost capacity
Japan’s new rail project comes on the heels of another investment aimed at expanding Mongolia’s aviation capacity.
A joint venture between Japan’s Mitsubishi Corporation and Chiyoda Corporate are leading the development of Ulaanbaatar’s new international airport, while loans from the Japan International Cooperation Agency (JICA), valued at more than $530m, are helping to fund the project. According to the JICA, the loan stands as the largest to be granted by the agency since it began providing support to Mongolia in the late 1970s.
Located some 60 km south of Ulaanbaatar, the new airport will have a passenger handling capacity of 3m when it opens in mid-2017, a significant increase over the current facility’s capacity.
While Chinggis Khaan International Airport, which continues to serve the capital, has increased its passenger handling capacity from 610,000 per year in 2008 to 1.1m in 2013, the facility can no longer keep pace with accelerating demand.
The new international airport has been designed with further expansion in mind, with infrastructure to be put in place that will enable the site to scale up to accommodate as many as 12m passengers per year.
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Source:Oxford Business Group
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