{"id":11223,"date":"2016-11-04T08:54:26","date_gmt":"2016-11-04T12:54:26","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/mongolia-mining-corporation-when-coal-drives-the-fate-of-an-entire-nation\/"},"modified":"2016-11-05T11:18:11","modified_gmt":"2016-11-05T15:18:11","slug":"mongolia-mining-corporation-when-coal-drives-the-fate-of-an-entire-nation","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/mongolia-mining-corporation-when-coal-drives-the-fate-of-an-entire-nation\/","title":{"rendered":"Mongolia Mining Corporation: When coal drives the fate of an entire nation"},"content":{"rendered":"

Economic and business background<\/em><\/p>\n

Mongolia Mining Corporation (MMC)<\/strong> owns and operates a portion of the world\u2019s largest[1]<\/a> coking coal deposit called Tavan Tolgoi (TT).\u00a0 It is located in the south-east of Mongolia, 200 km from the border with China, a big consumer of Mongolian coal. Despite only having a population of 3 million people, in 2014 Mongolia produced 33 mT (million tonnes) of coal; Mongolia is the 19th<\/sup> largest global coal producer[2]<\/a>, but is #1 in terms of coal production per capita.\u00a0 Mongolia is an emerging market and a developing country, with GDP per capita (US$ PPP, 2015) of $5,900, roughly on par with Indonesia ($5,200).<\/p>\n

For most of its history, the Mongolian economy and culture were centered on animal husbandry. But in recent years, Mongolia industrialized and started developing its vast endowments of copper and coal.\u00a0 Since the mid-2000s Mongolia\u2019s coal production went parabolic, and is currently at 33 mT. 40-60% of this coal is exported, primarily to China, and the rest is consumed domestically, mainly for power generation. \u00a0Coal export revenues constitute 5-10% of Mongolia\u2019s GDP[3]<\/a>.<\/p>\n

MMC produces circa 8 mT of coal and generates zero profits due to high transportation costs of trucking the coal to the Chinese border[4]<\/a>. \u00a0This led MMC to recently default on its debts and enter restructuring negotiations. MMC is mainly owned by the Mongolian government, and the government very much wants MMC to be profitable. \u00a0As a result, the government is facilitating the building of a railway link between the mine and the Chinese border, which would significantly reduce transportation costs and allow MMC to turn a profit.\u00a0 This in turn would increase budget revenue and GDP.<\/p>\n

 <\/p>\n

Environmental impact<\/em><\/p>\n

Mongolia\u2019s mining sector expansion helped GDP per capita compound at 15% p.a. (in US$ terms) in the past 15 years[5]<\/a>, but environmental costs are also believed to be readily observable. \u00a0In urban areas, smog from coal-burning is worsening[6]<\/a>. \u00a0The expansion of the mines has also necessitated the construction of housing and infrastructure for mining workers, which impacted the livelihood of cattle farmers in areas of close proximity and caused concerns about encroachment of traditional pasture lands[7]<\/a>. 40% of Mongolia\u2019s inhabitants are herders, making this a particularly sensitive topic[8]<\/a>.<\/p>\n

Emissions intensity per unit of GDP is high relative to global peers[9]<\/a>.\u00a0 Mongolia generated 19 mT of CO2 in 2012, 78% of which was from coal production and consumption within Mongolia. \u00a0However, since half of the coal that Mongolia produces is exported to China (where it is burned in power plants or used to make steel), these figures are virtually certain to understate the true global CO2 impact of Mongolian coal[10]<\/a>. \u00a0Safe to say, Mongolia\u2019s government is keenly aware that the country is over-reliant on coal, both for its own energy uses (coal is used for 85%+ of internal power generation) and for export revenues. \u00a0The government recently announced a commitment to reduce CO2-per-$-of-GDP by 60% by 2030. Whilst this is a noble long-term goal, in the short term, the government does not have the luxury of worrying about the environment as the decision-makers are preoccupied with staving off an economic depression driven by a collapse in the copper price; since 2011, the global price of copper halved, and copper exports account for 10-20% of Mongolia\u2019s GDP. \u00a0Low export revenues have resulted in a 20% public budget deficit, and some of the public sector workers have not been paid in months. \u00a0Linked to all this, the Mongolian currency (the Tugrik) has been rapidly depreciating[11]<\/a>. \u00a0The government is thus scrambling for money and is uniquely motivated to grow any export revenues that it can find, including coal. \u00a0The government\u2019s plans to diversify the power generation sector away from coal towards renewables is also taking a back seat.<\/p>\n

 <\/p>\n

Concluding thoughts<\/em><\/p>\n

MMC\u2019s sole business is to extract and transport the world\u2019s environmentally-dirtiest commodity. And because Mongolia is an emerging market early in its development phase and is also sitting on top of some of the world\u2019s largest coal deposits, it has little other options at this stage<\/span> other than maximizing coal production to satisfy own power needs and generate export profits. \u00a0The proximity to China and China\u2019s insatiable demand for natural resources are also important factors.\u00a0 All these things combine into a blessing (a cash cow) and a curse, and will be an eternal source of tension.<\/p>\n

 <\/p>\n

(word count = 795).<\/p>\n

 <\/p>\n

[1]<\/a> http:\/\/www.mining.com\/mongolia-readies-revive-giant-tavan-tolgoi-coal-mine\/<\/p>\n

[2]<\/a> EIA International Energy Statistics<\/p>\n

[3]<\/a> Above sources, combined with GDP data from EIU Mongolia Country Report<\/p>\n

[4]<\/a> MMC investor relations<\/p>\n

[5]<\/a> World Bank data<\/p>\n

[6]<\/a> http:\/\/www.latimes.com\/world\/asia\/la-fg-mongolia-air-pollution-20150515-story.html<\/p>\n

[7]<\/a> https:\/\/www.theguardian.com\/global-development\/2016\/mar\/10\/climate-change-mongolia-destroying-pastures-nomadic-herders-dzud<\/p>\n

[8]<\/a> https:\/\/www.newsecuritybeat.org\/2012\/07\/in-mongolia-climate-change-and-mining-boom-threaten-national-identity\/<\/p>\n

[9]<\/a> http:\/\/www.lse.ac.uk\/GranthamInstitute\/legislation\/countries\/mongolia\/<\/p>\n

[10]<\/a> Batsuri & Erickson (2015), \u201cThe net CO2 impact of increasing exports of coal from Mongolia to China\u201d.<\/p>\n

[11]<\/a> http:\/\/www.bloomberg.com\/news\/articles\/2016-08-16\/world-s-worst-currency-in-record-slide-as-mongolia-sees-crisis<\/p>\n","protected":false},"excerpt":{"rendered":"

MMC, a leading Mongolian miner of coal, is struggling due to low profits, a high debt burden and is both intrinsically and extrinsically motivated to maximise production volumes. 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