Mongolia beckons

THE LEGENDARY PALACE of Kublai Khan in Xanadu is said to have gleamed with marble and gilt, wooing visitors from across the world. Today mandarins flock to the Great Khan’s homeland for a different reason: coal. Mongolia’s vast coalfields—with an estimated 150 billion tonnes of high-quality coal—and the fact that it is looking for trading alternatives to China, is drawing several countries, including India.

China is Mongolia’s biggest trading partner—it imported goods worth $1.3 billion (Rs 5,780 crore) out of Mongolia’s total exports of $1.9 billion in 2009—but can hold the economy to ransom. In 2002, for instance, when the Dalai Lama visited Mongolia, China expressed its displeasure by halting all trade.

Mongolia signalled its intention to move away from China when its government announced in June 2010 that it would build a rail link to transport coal to Russia’s Vladivostok port instead of China. This will raise the cost from $33 a tonne to $95 (according to World Bank estimates), but will give Mongolia a chance to sell to other countries. This is exactly the opportunity India has been waiting for. As if on cue, India’s second highest ranking diplomat in Russia, Satbir Singh, was moved to Mongolia as ambassador.

Mongolia is also willing to give mining concessions to Indian companies in exchange for help in building infrastructure. “Mongolia is keen to enter into partnerships with India, not only in mining and infrastructure but also in the overall development of the country. It sees India as its most important partner after China and Russia,” says Shanta Sheela Nair, former mining secretary, who led an official trade delegation to Mongolia this June.

Things have already started to move. Jindal Steel & Power has bid for the Tavan Tolgoi coal mines, along with 10 international bidders, though the Mongolian government’s decision to retain a 51% stake dampened the enthusiasm. “We are still in the fray, but moving coal from Vladivostok could become prohibitively expensive,” says Sushil Maru, chief financial officer at Jindal Steel. Nair says Indian firms can also set up factories there.

India has little time to lose. Sensing Mongolia’s shift in attitude towards China, Korea and Japan have also begun their overtures. Xanadu is clearly living up to its billing.