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Mongolia Eyes India as Third Destination for Coal Exports www.thediplomat.com
Mongolia and India are taking major steps to boost economic activities between Ulaanbaatar and New Delhi. Amid disruptions in Australian coal supplies to India, in tandem with Mongolia’s drive to diversify its export destinations, the two countries are embarking on a new deal that may create a new supply line from Mongolia to India.
In late November, the Mongolian and the Indian governments discussed what could be a major deal for both Ulaanbaatar and New Delhi: exports of coking coal, which is a critical raw material for India’s steel industry. The deal concerns two specific companies, JSW Steel and Steel Authority of India (SAIL), but if it succeeds it will pave the way for more companies to follow.
Currently in progress, the India-Mongolia preliminary pact would involve exporting “coal, copper, and transit of these minerals.” Given Mongolia’s landlocked position, the country’s economy requires strategic connectivity with its neighbors for the use of their trade ports. Mongolia’s exports to third destinations will need to transit through either Russia or China, and those logistics will be reflected in India’s cost-benefit analysis.
In recent years, the changes in Australian coal supply to India and the intermittent tensions between India and China have pushed India’s Modi government to seek alternative sources of coal. Any India-Mongolia coal trade thus would be likely to transit through Russia. For Mongolia, these geopolitical tensions and economic rivalries only offers a window of opportunity for meeting it own economic goals.
According to the International Energy Agency (IEA), between 2000 and 2022, India’s coal consumption rose 219 percent. India’s continued growth and economic goals require a major uptake in coal consumption. Following Australia-India supply chain issues, in 2021, India’s JSW Steel imported 8,000 tons of high-quality coal from Mongolia as a test drive, the Mongolian Mining Journal reported. In that case, the coal transited through China. To Mongolia’s landlocked economy, having India, a major coal consumer, as a customer can make a big difference in revenue and development, while signaling other global partners to consider Mongolia as a coal exporter.
Today, around 90 percent of Mongolia’s coal production is exported to China. The construction of railways and improving connectivity supports Mongolia’s export to its neighbors but also to third countries. As I wrote previously for Foreign Policy, new railroads are expected to increase “exports to between $14 billion and $17 billion in 2025-2028 and $20 billion by 2029.”
Considering the distance, pricing, taxation, and China-Mongolia railway connectivity, there is no better export destination than China. At the same time, Beijing’s extensive financial and technological shift to renewable energy will have a direct impact on Mongolia’s coal exports, forcing Ulaanbaatar to seek additional buyers. Although this by no means will replace China as a major buyer, in the long run, it does behoove Ulaanbaatar to secure alternative destinations for its exports.
In the last decade, Mongolia and India have successfully leveraged their strategic partnership in starting multiple economic ventures. India’s investment in Mongolia’s first oil refinery is one notable example. According to Mongolia’s Mineral Resources and Petroleum Authority, “The oil refinery is expected to reduce dependence on fuel imports and [reduce] foreign exchange outflows by 20 percent and increase Mongolia’s budget revenues by $150 million.” The refinery, with an output of 1.5 million tons, is supposed to be operational in 2026.
As Mongolia continue to seek avenues to diversify its energy sector, India’s participation will be crucial. In 2009, India and Mongolia signed a Memorandum of Understanding (MOU) on cooperation in radioactive minerals, nuclear energy, and uranium development in Mongolia. Similar to France’s interest in Mongolia’s uranium deposits, India is also looking to activate previous agreements into working mechanisms.
In 2019, during Mongolian President Battulga Khaltmaa’s state visit to India, the two countries signed multiple agreements that boosted their ties in diverse sectors including exploration and uses of outer space, cultural exchanges, animal husbandry, and enhancing disaster response.
In line with Ulaanbaatar’s third neighbor policy and its economic goals, Mongolia is constantly searching for diverse avenues to increase exports, attract investment, and remain globally relevant with its abundance of natural resources. Mongolia’s government, headed by Prime Minister Oyun-Erdene Luvsannamsrai, is pushing the diversification agenda while also strengthening its comprehensive strategic partnership with Russia and China.
These efforts supplement geopolitical shifts and emerging trade routes, which Mongolia has no control over nor direct access to. In this context, Mongolian coal exports to India have the potential to reduce Ulaanbaatar’s landlocked conundrum.
As Mongolia and India will celebrate the 70th anniversary of thee establishment of diplomatic relations in 2025, Ulaanbaatar and New Delhi’s cooperation will continue to expand on economic, trade, scientific, technical, and humanitarian issues. The two countries’ economic partnership, specifically exports of Mongolian coal to India, has the potential to create a new trade route Ulaanbaatar can utilize more broadly.
Published Date:2024-12-06
