Rail transport is a driving force for the socio-economic development of any country. It used to be the case in Mongolia. The beginning of Mongolia’s industrial development traces back to 1938, when coal was first transported to our first-ever power plant on a 42 km, narrow gauge railway from Nalaikh to Ulaanbaatar.
In 1955, the northern border of Mongolia was connected to the southern border with a 1,115 km railway. In order to make the connection, a total of 508 bridges, 35 relay stations, five depots, and a central station in Ulaanbaatar, along with many villages that had residential neighborhoods, hospitals, schools, cafeterias, and stores. A 200 km railway to the Salkhit-Erdenet copper-molybdenum mine was completed in 1973. This was all built by Joint Stock Company Ulaanbaatar Railways (UBR), which was jointly founded by the Mongolian and Russian governments in 1949.
Occupying a significant area within Ulaanbaatar, today UBR has a total of 1,815 km of railway, 17,000 employees, and is responsible for 60 percent of all nationwide freight turnover, as well as 50 percent of all rail passenger traffic. However, it has become a “kingdom” inside a nation by being too large, inefficient, unclear, and obstructing city traffic. There is a Mongolian saying that says “The time is never always the same, just like an iris does not always look blue”, which means that times change.
Not able to meet the needs of Mongolia’s rapid development and lacking proper management and technology, UBR has spent 20 years (since the 1990s) conflicting with the normal ways of doing things in a market economy, and has turned into a shackle that impedes economic development today. If UBR had acted sensibly and adapted to the changing needs of a market economy, Mongolia’s total freight turnover and passenger traffic would have grown significantly. UBR resembles a dog sitting on a bundle of hay, not eating the grass while refusing to share it with others. The main reason why UBR has become a bottleneck, hindering development, is that they have a natural tendency towards monopoly and are fully separated from the market economy because of the bilateral agreement between the two countries.
UBR is the only economic entity that does not pay taxes while operating on Mongolian soil. Their operations are governed by an outdated agreement established by the two governments, one that has already completed its historical purpose. UBR is not compliant with Mongolian laws and the constitution regarding companies, registration, fair competition, and land.
Other countries have already adapted to international standards and norms. For example, Russia has been implementing the European Union directive 91/440, and changed their rail infrastructure to improve efficiency by separating the basic structure from the rail operator.
Having the mindset of Erdenet, another joint company, Mongolia has lost 25 years talking about how to increase its UBR ownership from 50 percent to 51 percent, and has not taken it up with Russia.
Mongolian political parties that acquire ruling power one by one, in turn, benefit from this economic entity being inefficient and barely coping with social pressures. It is almost as if the government wants to keep state properties as they are, so that they can appoint their own people in various positions, be in charge of management, keep ownership unclear, and establish goods and services contracts with their own companies. The countless meetings they have had around UBR have wasted an entire era talking about seats and positions rather than tackling the main problem and changing the JSC agreement.
Mongolia’s entire rail and road networks should be owned by the government, but managed and operated by private entities or public shareholding companies. Such ownership allows for competition and efficiency. Even if the infrastructure, such as roads, water supply, or power plants, were established jointly with another country, it must not be owned by another government. The infrastructure can only be used for a certain amount of time, but it should not belong to a foreign country.
Mongolia will not be able to achieve development without reforming UBR by implementing international norms. It is time for us to take advantage of our geographical location and become the next Panama Canal and play an essential role in international rail networks. A magisterial route connecting China and Southeast Asia (two of the biggest players in the global economy) with Western Europe goes through our territory. This route offers rail transport that is cheaper and twice as fast as sea transport. One assessment proved that the Steppe Road, Mongolia’s 2,200 km wide corridor, is twice as cheap as building railway, roads, natural gas pipelines, and power lines over the Altai and Khyangan mountains going around Mongolia.
Mongolia has started pursuing a policy to handle transshipment services between two different gauge railways by connecting to our two neighbors with a gauge difference of 85 mm. A third country managing these logistics is not only efficient for Russia and China, but also the international market. In order to provide such a service, there is a need to build a new railway connecting Zamiin-Uud and Altanbulag. The numerous existing loops in railway routes go through the capital city, where more than half of our population is concentrated, while there are unclear issues of infrastructure ownership. They all point to the need to find a brand new solution.
The existing railway has the capacity for transporting freight weighing 2,000 tons at a speed of 30 to 40 km per hour. It can transport a total of 20 million tons a year. If the planned 400 million USD are raised, the capacity can be improved by 75 percent, which will take the capacity to 35 million tons a year. However, it will still prove to be insufficient in five years’ time, when the demand will reach 100 million tons. To fully meet this demand, a feasibility study was developed seven years ago to build a 1,085 km railway that goes around downtown UB to the south of Bogd Mountain at a speed of 120 km per hour, and with the capacity to transport 6,000 to 10,000 tons of freight. On top of that, there is a need to do the necessary assessments for building a terminal where freight can be transshipped in Tuv aimag. The new railway transit project ought to start immediately.
Parliament has recently issued a decision on a new railway route from Erdenet to Kyzyl, going through the Ovoot, Ovoot-Arts suuri, and Tsagaan Tolgoi ports. This decision should be implemented soon and the concession process must be sped up.
As Mongolia is having political and economic dialogues with its two neighbors and discussing joint mega projects, it is a favorable time for our government to take the initiative with aligned policies and act with speed to continue the implementation of new railway projects. Railway has to be the driving force behind Mongolia’s rapid development.
2014.12.10