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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 12 months bought 84 % of Mongolia’s whole exports. As a substitute, the corporate’s coal will likely be auctioned on the Mongolian Inventory Trade.

The transfer to promote coal contracts by means 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 govt Gankhuyag Battulga and several other associates in addition to relations have been arrested and await trial, accused of embezzling billions of {dollars} in coal income. Authorities say the auctions will enhance transparency and finally internet increased returns for the state.

The federal government had deliberate to begin the bidding course of later this 12 months however expedited the method following public outcry over corruption.

“Instead of waiting for half a year we will have it traded online starting in February and the Mongolian Stock Exchange is going to handle that,” Batnairamdal, Mongolia’s vice minister for mining and heavy trade, instructed Al Jazeera. “This will help give us experience in selling coal on an online platform.”

Trucks carrying coal in Mongolia.
Mongolia’s coal exports account for about one-quarter of GDP [File: B Rentsendorj/Reuters]

Sandwiched between Russia and China, Mongolia is among the world’s most sparsely populated international locations with 3.3 million folks 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 means of the Gashuunsukhait border publish, positioned about 240km (150 miles) south of the Tavan Tolgoi coal deposit within the Gobi Desert. Along with Erdenes-Tavantolgoi, affected firms embrace Vitality Assets LLC, whose mum or dad firm Mongolian Mining Corp is listed on the Hong Kong Inventory Trade.

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 roughly 57 % of the world’s metal manufacturing. However it can not produce sufficient coking coal domestically to fulfill the wants of its metal factories.

In 2022, China imported 170.71 million tonnes of coal, in keeping with knowledge from China’s Common Administration of Customs. Mongolia equipped 31.2 million tonnes, about 18 % of the entire.

Mongolia’s coking coal has turn out to be particularly valued lately as China has dialled again its reliance on Australian coal following a pointy deterioration in relations between the international locations.

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 value had elevated 12.2 % above the unique asking value, from 1,150 to 1,290 Chinese language yuan ($170-$190) per tonne.

“The initial trade shows that coal contracts will help to improve the transparency of the coal trade and increase sales revenue,” Javkhlan Ivanov, the alternate’s chief monetary officer, instructed Al Jazeera. “Coal E-auctions will be conducted without any broker and carry a trading commission of 0.1 percent.”

Backroom offers

The brand new system comes only a month after a gaggle of coal mining executives and their co-conspirators have 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 means of the inventory alternate will stop theft and backroom offers. Mongolia ranked 110 out of 180 international locations on a corruption perceptions index compiled by Transparency Worldwide two years in the past.

“In the past, state-owned companies signed purchase and sales agreements with buyers they found and they did it behind closed doors,” Batnairamdal stated. “Under the new system, any buyer will be able to open an account and participate in the commodity purchase through licensed brokers on an equal playing field.”

Additionally on the horizon are plans to widen the coal auctions to different minerals. Potential commodities to be traded embrace copper, iron ore, gold, fluorspar, molybdenum, and different minerals.

“The contract types will be spot, futures, options, and forwards,” Javkhlan stated. “The main purchasers would be Chinese and Russian importers as well as foreign and local derivative traders.”

Mongolia is taking a look at commodities exchanges in rising markets comparable to Turkey and Poland in addition to mature exchanges just like the London Metals Trade as fashions for Mongolia to make use of because it develops its personal alternate, Batnairamdal stated.

Jake Horslen, senior LNG analyst for Vitality Facets, a London-based market evaluation agency, stated commodity exchanges could be helpful once they carry collectively patrons and sellers in low-liquidity or opaque markets.

“They can also reduce counterparty risk as the exchange acts as the counterparty for buyers and sellers in each deal, rather than another firm,” Horslen instructed Al Jazeera.

The corruption probe that set most of the adjustments in movement has to date resulted within the arrests of 17 folks 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 every one was not properly with the corporate occurred in October when Erdenes-Tavantolgoi JSC’s chief govt was fired with little clarification, and management was handed over to a particular envoy from the Ministry of Finance.

A protester in Mongolia with a small megaphone is standing in front of a line of police officers wearing high-vis vests.
1000’s of Mongolians poured into the streets in subzero temperatures final month to protest alleged corruption and hovering residing prices [File: B. Rentsendorj

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 e-newsletter, stated the commodities market might assist the federal government win again among the belief misplaced through the fiasco involving Erdenes-Tavantolgoi JSC.

“Mongolians seem to regard the stock exchange as a symbol of transparency,” Zolbayar instructed Al Jazeera. “The coal theft was possible because the involved companies lacked transparency — no one could see how they were selling coal and to whom they were selling 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 each day.

“It is not a straightforward task,” Amar instructed 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 carried out to calm public outrage over longstanding points associated to corruption and high quality of life, Amar stated.

“The exchange may be perceived as a small step towards addressing larger issues related to inequality, living costs, the environment, and public health,” Amar stated. “But the government needs to take a comprehensive approach to address these concerns in order to gain public support ahead of the 2024 elections.”


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