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Mongolia’s connectivity and trade to benefit from transport sector development

Interview - April 25, 2014
In an interview with United World, Mr. Batkhuu from the Parliamentary Working Group on Transport at Mongolia’s Ministry of Transport discusses the current developments ongoing in Mongolia’s transport sector as well the country’s vision to build an integrated network of infrastructure in order to boost connectivity and trade
The first thing we would like to know is how you are contributing to the development of infrastructure and logistics here in Mongolia and what is your vision for the future?

Mongolia is located at the intersection between Asia and Europe. Using this geographical advantage, we are planning to become the shortest transit line country that connects Asia and Europe. In terms of track, the distance of the railway connecting Asia and Europe through Mongolia is 765 km shorter than any other railway.

Mongolia has a geographical advantage to build this railway; it has very few mountains, lakes or rivers that would become obstacles to railway construction. Generally, according to our estimates, if an express train railway connecting the south of Asia to the north of Europe is constructed, it would take only 7 days to travel from one point to the other. Currently, it takes more than 45 days. From an economic point of view, it is also beneficial to international trade since cargo can be transferred quickly between the producer and the customer. This would be beneficial to both world and regional trade. Furthermore, these improvements would bring huge profits to Mongolia.

Additionally, there are two huge markets surrounding us, Russia and China. There is a need to transport petroleum, fuel, mining commodities and lumber from Siberia to the mid, south, and east coast of China. Thus, we are not limiting ourselves only to railway transport. It is possible to transport natural gas and petroleum products through pipes. Vegetable and short-life foodstuffs can be transported through special trucks to be delivered door to door, however, transporting thermal coal by trucks is expensive.

Thus, it is possible, and more ideal, to process raw coal at the mining gates and construct transit lines for coal through Mongolia. From there, these lines can be used to transport coal from Russian or Mongolian markets to the Chinese market.
The shortest air route connecting the two countries passes through Mongolia. Using this route, total hours of flight can be shortened by 3.5 to 7 hours. You must be well aware of the fact that this makes sense economically. Also, because the country is uniquely located, an air hub can be built. There are world-class technologies that gather all the cargo from a region and distribute the cargos to provinces after sorting them out. So we have a logistics plant to integrate the air hub with road and railway transportation. Another advantage of the hub is that it could also be used by airlines as a transit stop; instead of carrying 3 tons of fuel as is required in a Europe to Asia flight, airlines could stop to refuel at the hub. Still, there is an opportunity to develop the region using this infrastructure and organize a comfortable train trip between Europe and Asian countries. A tourist starting in Russian Siberia could be passing the Chinese border at Erlian to visit China in a day.

An improved road infrastructure line also enables car tourism. It is beneficial to Mongolia to distribute its mining resources through both road and railway infrastructures that connect Mongolian regions. Using this transit network, mining resources in Mongolia can be delivered to any other world market in a short time at a cheap price, with a competitive advantage. This is the vision I have for the transportation sector.

One of the main challenges we have found so far while interviewing the sector, specifically the road and railway companies, is to get the financing to develop what the government is planning. We would like to know what is the government’s strategy to attract all those foreign investors?

For sure, favorable investment and a sound legal environment must be created. We are solving this matter in a general sense. We are working to create an environment that encourages foreign investors and at the same time offers legal and regulation stability. Investors can sign a guaranteed agreement with the government in certain large-amount investments. In addition to that, we are giving an equal opportunity in terms of rights and obligations to both local and foreign investors. Legal and economic environment shall be open, clear and transparent.

Related to how the investors shall trust the policy of the government credibility, stability and openness, we have also heard some concerns. Specifically, despite the fact that Mongolia is a brilliant example of a successful transition to democracy, there are still some services that are centralized, especially in the airlines. We have heard that MIAT is enjoying some beneficial treatment, being the only airline allowed to fly to certain destinations. So I would like to know from this institution, what is his role in allowing the same possibilities of exploiting the same services, regardless of whether the company is public or private.

Minister: The policy to encourage private entities is in implementation. As per MIAT, this is the state company with the longest history. This is the airline company chosen to represent Mongolia pursuant to the inter-government agreements. There is an opportunity to amend inter-government agreements in case there is enough market for more than one airline company. Airline transportation policies are strong for countries with no access to the sea as air travel is the only option for Mongolia to reach destinations worldwide. Due to the limited number of passengers, the market is also limited. Thus, giving permission to certain destinations to too many companies will hurt the sector. Thus the government regulation is necessary in order to balance the routes between profitable and nonprofitable.

I will give you one example. Airline companies conducting a flight from Ulaanbaatar to Europe realize a 20 percent loss. MIAT compensates this loss through the profitable routes to Asia. However, new airline companies only want to take a flight to the destinations that are profitable. If companies would like to get permission on routes, both profitable and unprofitable routes shall be included in it.

Because of our nomadic culture, Mongolians give high importance to their own transportation means. We simply have to create an environment that gives opportunties to airline companies to grow and stregthen their businesses and operations. I am about to make a law proposal to introduce economic regulation to the Law of Logistics. By introducing such economic regulation, we can encourage fair competition among airline companies – not letting some to only take profitable trip routes whilst others suffer losses from unprofitable routes.

It is our first time being here. I would like to know your evaluation of the relations between the USA and Mongolia. Also, in reference to the Millennium Challenge Corporation, please share some insight about the government’s development of infrastructure projects.

The projects being financed by the Millennium Challenge Fund are being successfully implemented in Mongolia. Midterm cooperation between Mongolia and the Fund is strong. Mongolia cooperates with the US in terms of a third neighbor policy. There are many things we have learned, and we continue to receive help from the US. A high number of people are also receiving education in the USA. There is an aphorism that the wheel doesn’t need to be reinvented, it only needs to be modified or improved. The same is true for us—Mongolia doesn’t need to go through all the mistakes the US did, but rather, to implement the right things the US did well.

We were discussing before that we had a chance to interview President Elbegdorj. He spoke how the government can be helpful to serve the country and has to be a smart government in terms of efficiency. So we would like to know, since the ministry is not that promoted or well known to the public audience, what is the purpose of the ministry? What is the purpose or the aim of the institution that you are presenting?

I have been elected as a minister of this sector for the third time. There is a necessity to implement a true market mechanism in this sector. We have to stop certain cases of monopoly. We have to develop this sector to enable the most accessible, affordable and quality service using technology for both local and foreign companies. We can strengthen our economy by doing this. At the same time, it enables us to conduct a business that is profitable and beneficial to the region and to the world. The fact that Mongolia is located in a unique “shortest route” should not be exclusive to Mongolia, it should also be beneficial to the region and to the world.

As you know, we are naming this report the Return of the Empire. We believe the best of Mongolia is still to come. Are there plans to connect Mongolia to the world and not simply Russia and China?

Ministry: As we are a landlocked country, railway transportation is limited to land. As for air transportation, we have joined the Open Sky Civil Aviation convention. As a result, I think Mongolia will be open for the world wide airline network.