OBG talks to Kh. Battulga, Former Minister of Roads, Transportation, Construction and Urban Development

Interview: Kh. Battulga

What major infrastructural projects are currently taking place in the country?

BATTULGA: After the 2008 parliamentary elections the mining sector experienced considerable growth and increased stability and efficiency, and by 2010 coking coal exports reached 15m tonnes. Contracts for key projects such as Oyu Tolgoi were signed and operations began with Ivanhoe Mines and Rio Tinto.

These developments show that Mongolia is an open country that embraces participation from “third neighbour” countries such as Canada. This third neighbour policy is new and very important for Mongolia, because we are overly dependent on one big market, China. For example, the current market price for a tonne of coking coal at a Chinese port is approximately $250-270, while we sell our coal to China at around $30-40.

The development of our infrastructure is crucial, and we have initiated several projects, such as connecting roads to 21 provinces, constructing housing in 330 soums (counties) to improve living conditions and replacing the ger (tent-dwelling) district in and around Ulaanbaatar with proper housing. Most importantly, we are implementing a new strategy for the development of a rail network connecting Mongolia and its mining towns with the outside world, especially with countries such as Japan and Korea and the wider East Asian region. One of our biggest projects is the creation of an industrial park in Sainshand, which will develop and process raw materials to produce value-added exports. We are very happy that initial reports and feasibility studies on Sainshand, conducted by Bechtel, were positive, proving the profitability of this project.

What challenges will need to be overcome in the implementation of these major projects?

BATTULGA: In my opinion, the biggest obstacles to implementation are people’s misperceptions and distrust of Mongolia’s ability to see these projects through. This is quite understandable because we have never undertaken projects of this magnitude before, and we are facing these challenges for the first time. Unfortunately, a lack of trust can impact on our completion times. However, we are now seeing positive steps and I have to say that Mongolia’s relationships with foreign companies are improving rapidly. If we can build our level of trust, we will make our task easier.

Our maximum capacity for coal export by rail is around 60m tonnes per year, with export destinations including Russia, China, Korea and into East Asia. We probably have the resources to export around 100m tonnes, but since there are only 3m Mongolians, we may not be able to handle such vast cash inflows. We have one of the world’s last remaining nomadic cultures, and our way of life has a very close relationship with nature. We must be careful to avoid taking on too many development or infrastructure projects in a short time.

What is Mongolia doing to attract foreign investors?

BATTULGA: The recently passed concession law represents the first time in Mongolian history that we have had a public-private partnership (PPP) framework for development. We hope that the successful partial privatisation of MIAT Mongolian Airlines will be our first PPP project, and will set a precedent for all future developments. I think that this will increase the level of trust people have in the government.

In addition, to attract large foreign investors to major infrastructure projects, we invited top companies such as McKinsey and Bechtel to conduct feasibility studies and draw master plans for these projects. These are trustworthy companies, and it is hoped their involvement would give firms and investors the confidence to work in Mongolia. Finally, the Chinese economy is growing rapidly, and we are ideally positioned to take advantage of China’s boom. Moreover, the continued decline of the US dollar is likely to spur investors to invest in profitable projects rather than hold cash.

On the basis of these developments, we are extremely optimistic about the country’s attractiveness for investment in the future in large and small projects.