Mongolia has taken its first step in building the infrastructure required to be a leading commodities exporter, after it approved construction of more than 5,000 km of railways, according to a report in The Financial Times. Prime Minister S. Batbold recently confirmed to investors at a conference in Hong Kong that provisional plans for an “east-west” rail network were moving ahead.

One purpose is to connect the necklace of resource deposits that extend along Mongolia“s southern perimeter in the south Gobi desert. Many of the deposits are less than 200km from the Chinese border. Mongolia’s proximity to China is a huge advantage along with the sheer volume of metals beneath its grasslands. But the country”s lack of basic infrastructure has undermined its prospects. The Soviet-built Trans-Mongolian Railway is the only large rail artery in the semi-nomadic country of fewer than 3 million people.

However, Mongolian leaders have released no estimates of project costs. One prominent investor in Mongolia said the railway would require “a serious bond”. In translated documents seen by the Financial Times, the Government has committed itself to finance and build the railways itself. But it also aired the possibility of public-private partnerships that could be lucrative for international infrastructure contractors.

The plans feature six rail lines totaling 1,800 km starting construction this year. That should be followed in 2011 by an additional project totaling 1,400 km of track. After 2015 an additional 2,000 km of rails are due to start construction.

Mongolia“s vast infrastructure-building needs also extend to electrification and road-building. The costs stand to strain an economy of relatively minuscule output that is fragile after the global financial crisis. The crisis burst bubbles in the banking, real estate, and construction industries after the collapse of global commodities prices undermined speculators” expectations. Last year the International Monetary Fund extended a USD230m loan to the country that is still being disbursed.

But in the past six months Mongolian leaders have been touring financial centers such as London, attempting to assure investors that a new, technocratic, and multi-party leadership has a blueprint for developing the country. Plans include partial privatization and flotation of many State-owned resource assets.

The rails will be Russian gauge. Executives in the Mongolian mining industry said in January an “east-west” railway was controversial and making headlines in part because of a debate over gauge and its political implications. The country”s foreign policy balances the interests of powerful neighbors Russia and China. China uses a different gauge, meaning Mongolian trains carrying commodities exports will need to pause at the border and change their chassis.