IS IT BENEFICIAL TO EXPORT COAL THROUGH VOSTOCHNY PORT IN RUSSIA?
President Kh.Battulga expressed interest in using the Russian port of Vostochny in the region of Primorsky Krai during his visit to Russia as part of the Eastern Economic Forum held in Vladivostok on September 6 and 7. The President envisions using the port for the transit of cargoes, namely coal, to the countries of the Asia-Pacific region.
President Kh.Battulga made his intentions clear during a meeting with the Governor of Primorye Vladimir Miklushevsky.
"First of all, we are interested in the Vostochny Port. Tomorrow I intend to visit the port to get acquainted with its operations on site," said the President, speaking of plans to implement projects in the field of logistics and transport with Primorye.
The President hopes to supply coal from Tavan Tolgoi to large Asian markets in Japan and South Korea using the Vostochny Port. His latest initiative has been the topic of much discussion, mainly due to the fact that it overlapped with the Coal Mongolia 2017 conference. Many sector experts and economists had their fair share of views on the possibility of using the Russian port.
According to many of the participants, the idea of using Russian ports and even using the Vostochny Port is not a new one. Energy Resources LLC reportedly conducted a trial run to Vostochny in 2011 in an effort to diversify their export routes. The company’s officials say that logistics alone cost 171 USD per ton, which did not include loading and unloading.
Currently, most coal exporting companies report that their logistics cost is steady at around 28 USD per ton. Any one, let alone a qualified economist, can see the discrepancy between the two options and have concerns. So why does the President want to push this initiative, even though it is not economically beneficial?
There are a number of possibilities why President Kh.Battulga might want to use the Vostochny port in spite of its economic drawbacks. The most logical and likely explanation is that the President is simply adamant and unwavering on his campaign promise of alleviating Mongolia’s trade dependence of China and he will do whatever it takes to accomplish that, even if it seemingly damages Mongolia’s coal sector. A portion of the voting base of Kh.Battulga has been known to be nationalistic and the President’s potential push to use the Vostochny Port could be a move to appease his voters.
Although it is not as simple as President Kh.Battulga deciding that Mongolia should use the Vostochny Port. The option of using the Vostochny Port is only on the table because the Russian government wants it on the table.
“Helping” Mongolia by letting it use the Vostochny Port is far more beneficial for Russia than it is for Mongolia. For one, increasing business and development on its lesser developed eastern shores has been a priority for Russia. One issue that has been underreported is that Russia and Mongolia are competitors in the coal market.
In March, China imported 19.5 percent more coal from Russian, bringing in 2.3 million tons, the highest monthly total since June 2014, according to data from the General Administration of Customs on Tuesday.
Russia is slowly but surely ramping up its coal output and increasing its routes to China while Mongolia bickers over a 200-km railway to China. In the wake of China’s coal import ban on North Korea due to nuclear testing, Russia and Mongolia are the two prime competitors as China’s immediate neighbors. Coal exported from the Tavan Tolgoi mine through the Vostochny Port will have to travel around 5,000 kilometers to get to its final consumer, compared with the 283-km proposed railway between Tavan Tolgoi and China’s border crossing in Gashuunsukhait, which already reaches its final destination. Routing Mongolian coal through the Vostochny Port increases transport cost and renders Mongolian coal essentially uncompetitive. It is even more convenient for Russia that Mongolia has spent eight years at a standstill bickering over a railway to China.
Many participants in the Coal Mongolia 2017 conference noted that while Mongolia was busy fighting over which railway to build, increasing political divide, Russia’s relative stability has allowed it to build up the port city of Vladivostok. All signs point to Russia ramping up coal exports even further.
The truth of the matter is that Mongolia has far more beneficial and profitable options than using the Vostochny Port. However, there are many issues and moving parts when it comes to this issue; it blends into politics, geopolitics, and even national security. Looking at the issue strictly through an economic lens shows us that there are less costly ways to reach other Asian market. Due to the sheer distance and underdeveloped infrastructure between Mongolia and Russia, exporting Mongolian coal through Russia is not economically sound.
Coal handling section at Vostochny Port
A map showing the proximity of Vostochny Port to large Asian markets