B. Dulguun: Electronic coal trading is piloted successfully

The Mongolian Mining Journal /Jun.2023/

The government has approved a temporary regulation for  the open electronic trade of coal for export. This will be effective until the “Law on Mineral Commodity Exchange” comes into force, i.e. until the end of June of this year. During this period, the government has assigned the electronic trading of coal through the Mongolian Stock Exchange, and the Financial Regulatory Commission has been  tasked with overseeing electronic trading. The first experimental electronic trading was done on the 12th January, and the seller, Energy Resources, submitted a proposal to sell 12,800 tons of coal. The auction price rose from 1250 yuan to 1290 yuan ($187 per tonne), an increase of 12.2%, and the trade was successful. The head of the Securities Department of the Financial Regulatory Commission, B. Dulguun answered some questions about how to conduct open electronic trading of coal through the exchange and whether there have been any changes in the regulation.

The first electronic coal trade was successful. Will it continue in the future?
Having studied the possibility of organizing an open and transparent trade of coal from Erdenes Tavantolgoi JSC, which generates most of the export income, it was agreed that it is more effective to conduct electronic trade through the exchange system. So, the “Temporary Regulation on Open Electronic Trading of Coal for Export” was approved. The Financial Regulatory Commission has assumed responsibility for monitoring and regulating this market. In addition, on Thursday last week, Parliament passed a resolution asking the the government to enable open electronic trading of mining products through the Mongolian Stock Exchange based on the approval of the Law on Mineral Commodity Exchange. The Financial Regulatory Commission was assigned to approve and implement the procedures for monitoring this relationship. Accordingly, our organization has developed a monitoring procedure. According to the draft government resolution, a joint decree will be issued jointly by the Minister of Mining and Heavy Industry, the Minister of Economic Development, the Minister of Finance and the head of the Financial Regulatory Commission. We expect this decree to be approved soon.

What procedures and contract templates will the stock exchange develop?
The stock exchange will approve an electronic trading manual and develop an application form. A contract template for seller and buyer and bilateral export contract have also been developed.

Is there anything to change or improve during electronic trading?
The Financial Regulatory Commission met all interested parties the week before the trade, consolidated and presented major proposals, and reached mutual understanding. We successfully launched a pilot trade as the beginning of this complex work. The seller placed an announcement five days before the trade, and the buyer deposited the money into the seller’s account at a Mongolian commercial bank. This means that the transaction actually took place.

Is electronic coal trade attractive to the buyer? Has the number of participants increased?
At the moment, more than ten buyers have registered at the Stock Exchange and submitted applications to participate in trades. 

Do Chinese companies make up the majority of bidders?
There are also representatives from Singapore and other countries. These are foreign producers who can get our coal through China. Participants are foreign companies that pay taxes and have an export permit. Whether it’s a manufacturer or other companies, there’s an opportunity for any company to participate in trades by placing a deposit. Those companies are applying and getting registered. The main purpose of the trade is to sell coal extracted in Mongolia in an open auction, increase the price of coal and keep it at a stable level. Obviously, if the end buyer participates in this auction, they will bid higher than the intermediary. In other words, the market will fix itself. 
Does this mean that there is no risk of a middleman participating in the auction, making a profit and laundering money?
It is mandatory to provide documents such as the company registration certificate and tax number with a certified translation.

When will Erdenes Tavantolgoi JSC participate in this trade?
The process of transferring real assets from one party to another will take some time. So far, there have been no obstacles.

Since Erdenes Tavantolgoi JSC is a state-owned company, certain laws and rules for a state organization apply to this enterprise. They can participate in the trade after they prepare everything according to the rules and regulations. We planned to start this trade from 15  February. So we organized a successful pilot trade to see how well our electronic system works in a full cycle. In other words, the full cycle from producer to buyer was tested in this trade. Soon the coal that was sold will be delivered to the buyer. Trading on the minerals exchange is not as fast as stock trading. The process of transferring real assets from one party to the other will take some time. So far, there have been no obstacles.

A recent deal was made with the condition of supplying coal to the Gashuunsukhait terminal. You said that in addition to Erdenes Tavantolgoi JSC and Energy Resources LLC, there are opportunities for other companies to participate? Is it possible for a trader who exports coal through other border crossings, such as the Khangi terminal, to participate in this trade?
If necessary, this trade can be carried out at other border crossings as well. Currently, there are temporary regulations for coal export, so the coal of the company that applied for it will be sold.

The government policy is to sell coal at the border price through an open auction. This helps to develop domestic transportation and facilitates price stabilization. If necessary, this trade can also take place at other border crossings. Currently, there are temporary rules for coal exports, so only coal from the company that applied will be sold.

Thank you for the interview.