OBG talks to Batbayar Raash, President, M-Oil

Interview: Batbayar Raash

How will current infrastructure developments affect oil transport in Mongolia?

BATBAYAR RAASH: Transporting oil is no easy task and, therefore, the lack of infrastructure is a big challenge in our sector. Additionally, the more transportation is done by road, the more expensive it becomes. Current railway developments being undertaken by the government will have a major impact in reducing the costs of transporting oil in Mongolia, and it will become less risky as well. However, the main issue at this point is how long it is taking to implement such infrastructure projects. There are various bureaucratic hurdles that mean the time it is going to take to expand our railway network will be much longer than we would like, causing delays and adding financial costs for local businesses. What we need is a sound strategy and clear leadership to expand Mongolia’s railway network in as efficient and effective a manner as possible.

In which particular areas of Mongolia’s oil sector do you see the greatest scope for investment?

BATBAYAR: In the oil sector, opportunities for investors lie in two major areas: exploration and refineries. The former has more potential for growth, although at the same time it is a riskier proposition, as there are currently few developments taking place in this area and the available data is scarce. Indeed, oil exploration is in its infant stages in Mongolia. To boost investment, a draft law to regulate oil exploration and production in Mongolia is currently being debated in parliament and scheduled to be adopted in the coming months. Such positive developments on the legislative side will help to generate additional investment opportunities.

Mongolia also needs to increase its refining capacity to diversify its sources of oil away from its current reliance on Russian imports. To this end, the government is planning to open Mongolia’s first oil refinery in Darkhan-Uul province by 2015, with the capacity to process 2m tons of crude oil per year, in cooperation with Japanese companies and institutions. Although this is a step in the right direction, Mongolia needs to increase investment in building oil refineries, especially in the east and south-east of the country, where it is estimated that large oil deposits are located.

How do you expect the new investment law will affect business opportunities in the oil sector?

BATBAYAR: The new investment law has addressed historic problems with a view towards boosting future investment, although the results of this will not be seen overnight. What needs to happen now is for big projects to be completed, so that investors are convinced that business can be done in Mongolia, thereby increasing confidence in our market.

However, foreign direct investment (FDI) will still be driven by mining in the near term. Therefore our government needs to be smart in utilising the revenues generated by mining in a way that benefits other sectors in the country, including oil. Particularly in the oil sector, projects such as the new refinery will help to significantly boost investors’ confidence and will result in greater FDI in this sector in the future.

What are your expectations for how the oil sector will develop in the coming years?

BATBAYAR: Oil is a very sensitive and important subject for any country. Due to the interconnected nature of the industry, political and social unrest in certain parts of the world can have an impact on our local oil sector. Nevertheless, there are external factors that provide grounds for cautious optimism. The global economy is slowly improving and China is recovering from a slight slowdown, which will have a direct positive impact on Mongolia’s economy.

Whatever the international situation may be, the truth is that Mongolia has to grasp the opportunity to be self-sufficient in oil. In our country, oil exploration and production have been somewhat overlooked until recently. We are now seeing more interest from both the public and private sectors, which is encouraging.