Final month, protestors stormed the Mongolian capital to denounce corruption within the nation’s coal commerce. Now the federal government says it has an answer to place a cease to years of shady enterprise offers.
Beginning subsequent month, Erdenes-Tavantolgoi JSC — the nation’s largest state-owned coal miner — will stop signing direct gross sales contracts with patrons in neighbouring China, which final yr bought 84 % of Mongolia’s whole exports. As a substitute, the corporate’s coal shall be auctioned on the Mongolian Inventory Alternate.
The transfer to promote coal contracts by way of the alternate is available in response to large-scale protests towards corruption in Ulaanbaatar in December, triggered by allegations of widespread fraud within the coal trade.
Erdenes-Tavantolgoi JSC was on the centre of the allegations — its chief government Gankhuyag Battulga and a number of other associates in addition to members of the family have been arrested and await trial, accused of embezzling billions of {dollars} in coal income. Authorities say the auctions will enhance transparency and in the end internet greater returns for the state.
The federal government had deliberate to begin the bidding course of later this yr however expedited the method following public outcry over corruption.
“As a substitute of ready for half a yr we can have it traded on-line beginning in February and the Mongolian Inventory Alternate goes to deal with that,” Batnairamdal, Mongolia’s vice minister for mining and heavy trade, informed Al Jazeera. “It will assist give us expertise in promoting coal on a web based platform.”
Sandwiched between Russia and China, Mongolia is without doubt one of the world’s most sparsely populated nations with 3.3 million individuals unfold throughout a panorama barely smaller than Alaska. In 2021, the nation had a gross home product (GDP) per capita of about $4,500, just like that of Indonesia. Mining accounts for roughly 1 / 4 of the nation’s GDP, in keeping with the Extractive Industries Transparency Initiative. About half of its export income comes from coal.
The contracts apply to coal exported by way of the Gashuunsukhait border put up, positioned about 240km (150 miles) south of the Tavan Tolgoi coal deposit within the Gobi Desert. Along with Erdenes-Tavantolgoi, affected firms embody Vitality Assets LLC, whose dad or mum firm Mongolian Mining Corp is listed on the Hong Kong Inventory Alternate.
Each firms excavate coal at Tavan Tolgoi, one of many world’s largest coking and thermal coal deposits, with 6.4 billion tonnes of reserves. The coal from Tavan Tolgoi is very prized in China, the place it’s used within the manufacturing of metal.
China is the world’s largest metal producer, accounting for about 57 % of the world’s metal manufacturing. Nevertheless it can not produce sufficient coking coal domestically to satisfy the wants of its metal factories.
In 2022, China imported 170.71 million tonnes of coal, in keeping with knowledge from China’s Basic Administration of Customs. Mongolia equipped 31.2 million tonnes, about 18 % of the overall.
Mongolia’s coking coal has change into particularly valued in recent times as China has dialled again its reliance on Australian coal following a pointy deterioration in relations between the nations.
Earlier this month, the inventory alternate organised a trial run commerce to check the brand new system — 12,800 tonnes of coking coal was auctioned to a Singapore-based coal transporter. The ultimate name worth had elevated 12.2 % above the unique asking worth, from 1,150 to 1,290 Chinese language yuan ($170-$190) per tonne.
“The preliminary commerce reveals that coal contracts will assist to enhance the transparency of the coal commerce and enhance gross sales income,” Javkhlan Ivanov, the alternate’s chief monetary officer, informed Al Jazeera. “Coal E-auctions shall be carried out with none dealer and carry a buying and selling fee of 0.1 %.”
Backroom offers
The brand new system comes only a month after a bunch of coal mining executives and their co-conspirators had been arrested for allegedly defrauding Erdenes-Tavantolgoi JSC. A lot of the theft was allegedly carried out by finishing up off-the-books coal gross sales with Chinese language patrons on the border.
The federal government argues that promoting coal by way of the inventory alternate will forestall theft and backroom offers. Mongolia ranked 110 out of 180 nations on a corruption perceptions index compiled by Transparency Worldwide two years in the past.
“Up to now, state-owned firms signed buy and gross sales agreements with patrons they discovered they usually did it behind closed doorways,” Batnairamdal stated. “Beneath the brand new system, any purchaser will be capable of open an account and take part within the commodity buy by way of licensed brokers on an equal taking part in subject.”
Additionally on the horizon are plans to widen the coal auctions to different minerals. Potential commodities to be traded embody copper, iron ore, gold, fluorspar, molybdenum, and different minerals.
“The contract varieties shall be spot, futures, choices, and forwards,” Javkhlan stated. “The primary purchasers could be Chinese language and Russian importers in addition to overseas and native spinoff merchants.”
Mongolia is commodities exchanges in rising markets akin to Turkey and Poland in addition to mature exchanges just like the London Metals Alternate as fashions for Mongolia to make use of because it develops its personal alternate, Batnairamdal stated.
Jake Horslen, senior LNG analyst for Vitality Elements, a London-based market evaluation agency, stated commodity exchanges might be helpful once they deliver collectively patrons and sellers in low-liquidity or opaque markets.
“They’ll additionally cut back counterparty threat because the alternate acts because the counterparty for patrons and sellers in every deal, reasonably than one other agency,” Horslen informed Al Jazeera.
The corruption probe that set most of the adjustments in movement has thus far resulted within the arrests of 17 individuals alleged to have been concerned within the theft from Erdenes-Tavantolgoi JSC. Former President Khaltmaa Battulga is amongst these being questioned over their involvement.
A sign that each one was not properly with the corporate occurred in October when Erdenes-Tavantolgoi JSC’s chief government was fired with little rationalization, and management was handed over to a particular envoy from the Ministry of Finance.
The corruption allegations in December prompted thousands of people to pour into the streets in subzero temperatures to call for accountability. The government has promised to reform Erdenes-Tavantolgoi JSC, hire employees in a transparent process and eventually make it a public company.
“The protesters want a solution. They don’t want cases like [the] coal theft to occur once more, they need the required reforms. We have to reform the mining sector,” Batnairamdal stated.
Zolbayar Enkhbaatar, editor-in-chief at Inside Mongolia, a market intelligence publication, stated the commodities market may assist the federal government win again a few of the belief misplaced through the fiasco involving Erdenes-Tavantolgoi JSC.
“Mongolians appear to treat the inventory alternate as an emblem of transparency,” Zolbayar informed Al Jazeera. “The coal theft was attainable as a result of the concerned firms lacked transparency — nobody may see how they had been promoting coal and to whom they had been promoting it.”
Others are extra cautious. Amar Adiya, regional director for Washington, DC-based strategic advisory agency BowerGroupAsia, stated that organising a profitable commodities alternate in Mongolia would require a excessive quantity of commodities to be traded every day.
“It’s not a simple process,” Amar informed Al Jazeera.
Whereas a commodities alternate may benefit each patrons and sellers of coal within the long-run, and should assist placate public mistrust over the coal commerce, extra must be performed to calm public outrage over longstanding points associated to corruption and high quality of life, Amar stated.
“The alternate could also be perceived as a small step in direction of addressing bigger points associated to inequality, residing prices, the atmosphere, and public well being,” Amar stated. “However the authorities must take a complete strategy to handle these considerations to be able to achieve public assist forward of the 2024 elections.”
