Mongolia is counting on supercharged coal exports after formalising an agreement with China to build a major cross-border railway link. The deal is seen as a terrific shot in the arm for the Mongolian economy—but officials don’t intend to stop there, they have even more ambitious plans.

Last year Mongolia exported an all-time high 83mn tonnes of coal to China. Once operational, the rail link will provide for the annual export of another 30mn tonnes, worth another $1.5bn in revenue at current prices. And, if two other planned rail crossings in the Gobi are also built, yearly coal exports, say officials, will hit 120mn tonnes by 2030.

Tuvaan Tsevegdorj, Mongolia’s minister for industry and mineral resources, told bne IntelliNews in a Zoom call. “Our current export capacity is 80 million tonnes of coal. Our plan is to increase that to 160 million tonnes, which means we have to discover more deposits and expand the mines on this side.”

Tuvaan described the agreed rail link as a “game-changer” for Mongolia due to his country’s historic reliance on trucking for coal transport.

“Mongolia has a goal of increasing per capita income to $10,000. The railroad will help to achieve that,” he said.

Railways from each country already approach each other at the Gashuusukhait-Gants Mod border point, located 400 miles (644 kilometres) south of Ulaanbaatar in South Gobi Province. The new agreement will create a 19.5-km long connector railway that spans the border.

Beijing has become increasingly reliant on Mongolian coal in recent years in the wake of a trade dispute between Australia and China that began in 2020. Mongolia stepped in to fill the gap, supplying around 60% of China’s coal needs.

Mongolia’s coal exports to China in 2022 stood at only 31.7mn tonnes, but they jumped to 66.7mn tonnes in 2023 and last year brought the latest annual record, as mentioned, a chunky 83mn tonnes.

Current infrastructure in the region allows Mongolia to move coal by rail from mines at Tavan Tolgoi – one of the world’s largest coal deposits with estimated reserves of 6.4bn tonnes – to a coal depot north of the border with China. From there, trucks are used to get the coal over the frontier.

Trucks are also used to shuttle coal the 145 miles from Tavan Tolgoi to the border but this costs around $32 per tonne for truck delivery while it’s just $8 per tonne by rail.

The rail link will be built jointly by China Energy and Mongolia’s state-owned Erdenes-Tavan Tolgoi JSC. The cost to Mongolia is 979 billion tughrik ($282.4mm), which pays for the railway on its side of the border. China is responsible for any construction needed on its side of the border, which already includes extensive coal-handling infrastructure. Work starts in April and is expected to take two to three years to complete.

This is Mongolia’s second railway connection with China. The Zamyn Uud-Erlian border point, established in 1955, created a rail connection from Ulaanbaatar to Beijing.

Amar Adiya, a political commentator and editor-in-chief of Mongolia Weekly, a business intelligence newsletter, sees only upsides for the rail project.

“The railway promises to significantly reduce transport costs, increase export volumes, and boost overall economic growth,” Amar said. “It's also strategically important for Mongolia to diversify its export routes and reduce reliance on a single mode of transport.”

The idea of a railway connecting Tavan Tolgoi with China was first floated in the 2000s. It became a start-stop affair due to funding problems and changes in political leadership, but it was finally completed in 2022.

Late last year Mongolian Prime Minister Oyun-Erdene Luvsannamsrai announced the cross-border rail link as a top priority for his administration. It has become a star item among his administration's 14 so-called mega-projects, which include energy projects and processing factories for mining products.

The Mongolia-China rail deal comes with long-term trade agreements. Amar says this aspect will ensure a steady demand for Mongolian coal by committing China Energy to purchase a specified volume over an extended period.

“It offers price stability and predictable revenue streams for Mongolia,” he said.