December 2, 2016

Southern Mongolia: Newly Imposed Surcharges Place Extra Strain on the Region

Photo Courtesy of the Financial Times

Chinese authorities have imposed new fees on commodity shipments at a major border crossing between the Chinese autonomous region of Southern Mongolia and Mongolia. This move comes amid a diplomatic row sparked by last week’s visit to Mongolia of Tibetan spiritual leader, His Holiness the Dalai Lama, whom Chinese authorities label a dangerous separatist. Newly-imposed transport charges will indebt many towns in Southern Mongolia already struggling with massive infrastructure spending since 2008. These new surcharges are an added strain to the region, alongside problems of overgrazing and water diversions for coal mining turning pasture land into barren desert. The latter had already elicited protests from Southern Mongolian herders against local officials for seizing and auctioning off grazing land. 

 

Below is an article published by the  Financial Times:

A remote Chinese border town in the Gobi desert has slapped transport surcharges on copper shipments from Rio Tinto’s Mongolian Oyu Tolgoi mine, an attempt to pay off the town’s debts that comes on the heels of a bilateral row over the Dalai Lama.

China vociferously protested against a visit to Mongolia last week by the Tibetan spiritual leader, who is revered by many Mongolian Buddhists but whom Beijing views as a dangerous separatist. China cancelled a diplomatic meeting after the visit. 

But while Mongolians worry about earthly retribution, the Chinese territory of Inner Mongolia is worried about debt. Gobi desert towns, like other local governments in China, are struggling with the legacy of massive infrastructure spending since 2008.

Transport charges on copper and coal introduced on Thursday at several border crossings in the Chinese region of Inner Mongolia are “mainly for the repayment of principal and interest of bank loans taken out for port infrastructure construction as well as port facilities maintenance, management and other normal operating costs”, according to a provincial document published early last month, well before the Dalai Lama’s trip.

The increase in fees on copper concentrate crossing the border specifically benefits Urad Middle Banner, the township home to the Gants Mod crossing, the only post to handle copper from Oyu Tolgoi, the world’s largest copper deposit.

The document authorises a surcharge of 0.2 per cent of the value of copper concentrate shipments. At current prices the charge works out to about Rmb78 ($11.3) per tonne, or Rmb3,800 per truckload. That would work out to about $18.7m per year.

The Mongolian government estimates the additional charges on coal will cost it 30bn tugriks ($12.2m) per year, an unwelcome extra burden as the country tightens its budget ahead of an estimated $1.8bn in debt payments due in the next two years. About half the country’s coal exports pass through Gants Mod. 

Rio Tinto started construction of Oyu Tolgoi in 2010 — and politicians in Mongolia began dreaming of how to spend the windfall. But this year they turned to the International Monetary Fund to help pay off the debt they took on.

On the other side of the border, Urad Middle Banner had big dreams too. It spent Rmb1.3bn on buildings, roads and a centralised heating system, according to the website of the city of Bayan Nor, which has jurisdiction over the township. In 2011 it splashed out another Rmb1.45bn on markets, offices and hotels. 

At Gants Mod a wide, six-storey building framed by a large plaza and sundial greets trucks from Mongolia. Six-lane roads wind through a town of scattered tower blocks and dirt lanes. Train tracks end next to enormous coal yards on the Chinese side, waiting for Mongolia to fund a rail link to the mine. 

The local government “invested so much in the port. There is indeed a gap” between the loans that have been taken out and the revenue earned at the crossing, an official at Bayan Nor explained. Municipal planners are “in an awkward position”, he added, caught between the indebted township and the Inner Mongolian regional planning bureau, which sets the transport fees. 

The new surcharges are not the only sign of strain in Urad Middle Banner and other towns like it along China’s northern frontier. Overgrazing and water diversions for coal mining are rapidly turning pasture land into barren desert. Ethnic Mongolian herders in the township have protested several times this year, claiming that local officials have seized and auctioned off grazing land.