1. 1 The Enlargement of Mongolian Railway Networks and the Collision of Commercial and Geopolitical Interests D. Shurkhuu Institute of International Studies, Mongolian Academy of Sciences Email: shur121@yahoo.com International Symposium Geopolitics and Geoeconomics of Mongolia's Natural Resource Strategy 19-20 March, 2013 Chadwick Room, Selwyn College, University of Cambridge

2. 2 INTRODUCTION The report briefly presents the relevance of studies in the field of infrastructure and services, which will be securing their access to regional and world market.

3. 3 BACKGROUND The Mongolian rail network comprises approximately 1,900 km of broad gauge/1520mm/ track,of which 1,110 km are on the main line linking Russia to China. This line was built by the Soviet construction unit "505" between 1948 and 1955 and has been owned by the Ulaanbaatar Railways, a Russian and Mongolian joint venture (50:50), since 1949. According to statistics, Ulaanbaatar Railway accounts for more than 80 percent of all national freight and 30 percent of all passenger transport within Mongolia. The total track length of the Ulaanbaatar Railway is 1,815 kilometers, and the company employs around 16,000 people.

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5. 5 Mongolia, as well as neighbors, well realized that without developed industrial and transportation infrastructure, it will be difficult to accomplish its own strategic development goals. Besides, we couldn’t develop and enhance mutual beneficial trade and economic cooperation with two big neighbors, as strategic partners.

6. 6 MONGOLIA’S TRANSPORT REVIEW: ROAD Mongolian government has paid significant attention to development and improvement of the road and transport sector and has dramatically increased investment in the sector. A large project, known as the “Millenuim Road,” that will build a highway across Mongolia is well underway. In the next 4 years, it has been purposed that that all aimag centers will be connected to capital Ulaanbaatar with asphalt roads.

7. 7 According to the State Policy on Railway Transportation, ratified by the Parliament in 2010, landlocked Mongolia has to construct 5,600 km of railway in 3 phases in an effort to extend the unified railway network, utilize large mines, and export commodities from those mines.

8. 8 Besides, policymakers face another challenge to provide a reasonable balance between the interests of private investors and the Government. Although private railways may be developed more quickly and operated more efficiently than government controlled railways, the Mongolian authority remains reluctant to give permission to two mining companies to construct their own private railways into China. In order to minimize transportation costs, both companies propose to use Chinese narrow gauge, but this has provoked fierce debates not only in Mongolia but also in those Central Asian states, such as Kyrgyzstan and Kazakhstan, where wide gauge railways are operated. People are concerned with potential risks associated with the development of these private railways. For example, private mining companies have been unwilling to allow competitors to have access to those railways at reasonable prices.

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11. 11 MONGOLIA’S TRANSPORT REVIEW:RAILWAY Since last year, the project to improve and renew railway has accelerated. The priorities of government policies in the railway sector: - improving the legal environment, - providing an environment for open and fair competition in the sector, - faciliating technique and technology reform, - building a national scale railway network that connects large cities and settlements as well as main natural resource deposits with vital mineral strategic deposits based on regional development policies, - bettering the capacity, effectiveness and conditions for the transport transit corridor that connects Asia-Europe.

12. While the Russian control over Mongolia's railway sector is likely to intensify, Mongolia’s other neighbour – China – will become a key partner of Mongolia in the railway sector, thanks to it being Mongolia’s nearest market, a major investor and the key transit country. In other words, China’s role and influence in the field of railway and sea access for Mongolia, is growing year by year. Gauge and route debates among Mongols reflect their ambivalent attitudes to two neighbours, emphasizing not only economic benefits on one hand, but also security concerns on the other. 12

13. RECENT DEVELOPMENTS Recently the Mongolian Government decided to consolidate the first and second stage railway base infrastructure construction projects into a unified railway project to be managed and implemented under government authority and financing with the participation of domestic and foreign investors. 13

14. 14 CHALLENGES AND BARRIERS Carried Freight / thous.t/ Source: N ational statistical office of Mongolia, Monthly Bulletin of Statistics, 2012 December, p 138

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16. 16 There are many barriers and constraints for cooperation as following: - Lack of accurate legislation and information/ for example: not yet ratified trilateral agreement on transit transport /; - Shortages in specialists with high qualification; - Challenges in the transit transport and service market; - Socio-psychological factors (attitudes, and beliefs or risk factor). E.g. Mongolian society’s traditional and historical fear from reliance on two great neighbors, cultural and languages differences, especially “China threat” factor; - Social and ecological degradation in two countries; - Weak interaction mechanism and coordination; - Shortages in huge investment and high technology. CHALLENGES AND BARRIERS

17. 17 POTENTIAL AND OPPORTUNITIES The preliminary favorable conditions necessary to advance and broaden cooperation with Mongolia’s two neighboring countries in developing the transport infrastructure have been already met. For instance, political and economic bilateral relations have reached a high level and bilateral trade has increased rapidly year to year. While trade between Russia and China has reached 48 billion dollars last year, Mongolian trade between the neighboring countries has increased dramatically as well- amounting to close to 3 billion dollars (2.77 billion with China and 789 million with Russia respectively).

18. 18 POTENTIAL AND OPPORTUNITIES Funding is already in place, split 50:50 between the government and a private investor, for a Roubles 89 billion project to build a 459km line from Kyzyl to Kuragino in the Altay mountains near the Mongolian border. The line will serve rich mineral deposits in the area and should generate 15 million tonnes of freight a year. “The line will be similar to China’s Tibet Railway as it will average 2000m above sea level, so it will be difficult to build,” says Lushnikov. Design work will start this year and it is hoped to open the line in 2012.

19. 19 POTENTIAL AND OPPORTUNITIES China has drastically increased its interest in import its coal and gas supplies from its neighboring countries - and Mongolia and Russia are rich in such raw materials. China, the world's biggest consumer of coal, demand and supply of the fuel will "generally balance" only by 2010. The nation's annual demand for coal will be about 3 billion tons within the next three years, close to the projected production capacity, said Wang Xianzheng, chairman of the China Coal Industry Association.

20. 20 COOPERATION PRIORITIES Looking at the strong complementary relationships among the three neighboring countries, we can see great potential and opportunities for comprehensive cooperation in the sector of transport. The promising and priority areas for trilateral transportation cooperation are: the establishment of integrated high quality transportation infrastructure, improving conditions for border transit of goods and passengers, increasing profitability of transit by reducing tariffs and import taxes, establishing free zones and land ports in vital border area points that are cross points for various modes of transport, improving transport logistics working on large projects with interested parties on transportation and infrastructure.

21. 21 Benefits of Cooperation If the neighboring three countries work trilaterally and closely in establishing a new transit (transport) corridor that connects Asia-Europe and ensuring its profitability, the countries will be able to attract large foreign investment and aid on one hand, and, on the other hand, reduce the heavy burden on the Trans-Siberian and Trans-China railways and increase the countries’ respective transport infrastructure and service revenue.

22. 22 Benefits of Cooperation Economic Impact: Significant clean contribution to the country's GDP growth; Enhancing opportunities for more exports to neighbors; Strengthening Economic Integration, which will be lead to an establishment of Free Trade Zone in the region of North Asia; Enlargement of Market for Services and Construction materials Improving Diversification of economies; Political and Social Impact: Domestic Stability through Joint Infrastructure Projects and Creating workplaces; Improving Mutual Trust by Sharing the Responsibilities; Better Emergency Preparedness; Sustainable Development and Prosperity for the NA region;

23. 23 CONCLUSION Comprehensive cooperation in the field of transportation infrastructure with such largest economies as China and Russia is of great economic and geopolitical significance for Mongolia. The development of mutually beneficial, long-term trilateral relations will aid in the development of mutual trust and friendly relations with our two neighboring countries, as well as strengthening Mongolia’s position in the Asia-Pacific region.

24. 24 Thank you for attention