Mongolia’s parliament adopted for the first time a rail gauge compatible with China, to ease transport of its second-biggest export, coal, to its largest customer.
The landlocked nation’s 1,900km rail network was built with help from the Soviet Union last century, as Mongolia looked westward for markets and political support.
Constructing the 240km railway from the Tavan Tolgoi coal basin using China’s standard gauge is expected to save on transportation costs, and helps draw a line under Mongolia’s historical mistrust of its southern neighbor, now the world’s largest energy consumer.
The Chinese gauge was adopted for two routes to the border with 84 percent of votes in favor, according to the parliament’s Web site. The passage follows years of discussion.
With this debate now put to rest, investors are likely feeling a sense of relief, Ulan Bator-based Mongolia Investment Business Group managing director Chris MacDougall said in an e-mail.
Winners from the change include the operator of projects at Tavan Tolgoi, Mongolia’s largest coal deposit with 6.4 billion tonnes of reserves, including Hong Kong-listed Mongolian Mining Corp and state-owned Erdenes Tavan Tolgoi JSC.
South Korea’s Samsung C&T Corp was awarded a US$483 million contract in May last year to build the tracks. Securing power and building signaling and maintenance depots is to increase the costs of the project to US$820 million.
In May, Mongolia Railway, the state-owned company overseeing the line, said construction was slated for completion in late 2016, according to Zorig Alimaa, the head of the project department at the time.
Using standard gauge rail instead of the broad gauge used elsewhere in the country would reduce the cost of transporting coal to China by US$2 a tonne to US$4 a tonne, Zorig said. Broad gauge adds costs because of the need to unload and reload coal before it reaches China, he said.
Imperial Russia adopted a gauge of 1,524mm in 1842 for military purposes, as a way to slow down an invasion by rail, but standard gauge, used in China, is 85mm narrower.
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