Coal Smuggling Trains The Mongolian Public’s Eye On Systemic Corruption – Analysis

By Gantulga Munkherdene and Ariell Ahearn*

Mongolia has substantial coal deposits across the country. Coal is an important source of government revenue alongside mineral exports from mega mines such as Oyu Tolgoi and the Erdenet copper mine. But in September 2022, a coal scandal began to unfold in Mongolia’s capital city of Ulaanbaatar.

Multiple disclosures were made regarding corruption and conflicts of interest associated with the state-owned coal company, Erdenes-Tavan Tolgoi JSC. Then in October 2022, the Mongolian government revealed that coal was being illegally transported across the Chinese border without customs registration. This coal smuggling was allegedly directed by individuals in high-level government positions. Mongolia’s new national opposition political party, the HUN Party, calculated that the total loss of potential revenue to the Mongolian government was equivalent to an estimated 40 trillion Mongolian tugrik (US$13 billion). The Mongolian government did not officially confirm this figure.

Coal executives involved in such deals directly implicated the governing Mongolian People’s Party (MPP) because Erdenes-Tavan Tolgoi JSC is state owned. According to Mongolian news media revelations in December 2022, Erdenes-Tavan Tolgoi JSC executives secretly signed multiple offtake contracts (largely with Chinese and Mongolian companies) to fund infrastructure projects in exchange for cheap coal. These projects included the Zag water pipeline, the Bogd Khan railway and Tavantolgoi Gashuun Sukhait road projects.

Erdenes-Tavan Tolgoi JSC’s chief executive officer was eventually arrested and imprisoned. Mongolia’s government installed a special representative to replace him. On 30 March 2023, two members of parliament — Tumurbaatar Ayursaikhan and Dashdemberal Bat-Erdene — lost their positions. Several Chinese officials associated with the coal trade were also arrested in China at the end of 2022.

This revelation of secret, internal deal-making within the state-owned company triggered large-scale protests in Ulaanbaatar. Yet these protests were directed not only at this scandal but embodied a larger anger at political dysfunction and endemic corruption in Mongolia. During the protests, many different opinions were broadcasted, including calls for the government to resign. Protesters also promised that this would be the first of further protests planned for when the intense winter cold thawed.

This scandal was seen as an example of so-called ‘theft-by-law’ because state secrets rules technically protectinternal deal-making and it is within the power of the ruling party’s decision makers. The scandal’s information source remains unclear — no single whistleblower has come forward, though several copies of the offtake agreements have been shared publicly.

The initial spotlight on the smuggling came from within MPP. Given the nature of Mongolian politics over the last decade, this situation is an indication of party fracturing and an internal fight for financial resources.

With the next election coming in June 2024, internal party fighting may have culminated in Prime Minister Luvsannamsrain Oyun-Erdene’s effort to exert his control over the MPP and use the scandal to display an anti-corruption stance. This was evident in Prime Minister Oyun-Erdene’s speech at the Plenary Session of Mongolia’s parliament on 15 December 2022 when he stated his rejection of the ‘MANAN gang’. MANAN refers to MAN — the MPP, and AN — the Democratic Party — combined to construct the Mongolian word for ‘fog’.

As Gantulga Munkherdene has argued in his analysis of ‘wild capitalism’ in Mongolia, MANAN has come to embody public perceptions of the fusing of Mongolian party politics with jockeying for control of the nation’s wealth. It has been in circulation to contest corruption since the mid-2000s.

The coal smuggling is not an isolated event. Powerful political figures are closely intertwined with large-scale business interests. The culture of corruption within the Mongolian state has existed over at least three decades, which closely tracks with the Mongolian mining boom starting in the early 2000s.

Politicians’ use of public funds for personal gain and the cultivation of financial and social privileges has a long history in Mongolia. A 2005 USAID report on corruption highlighted ‘a profound blurring of the lines between the public and private sector brought about by endemic and systemic conflict of interest at nearly all levels’.

Corruption scandals have plagued Mongolia. The Mongolian government unfairly awarded scholarships to relatives or children of politicians and a state-run health and social insurance fund was subject to high levels of corruption and theft of assets. The Development Bank of Mongolia’s famous Chinggis and Samurai bond money was gutted by government authorities and their family members and major Mongolian private companies with political connections. The state fund for small and medium enterprises also gave large loans to members of the MPP — often without them paying them back.

The coal smuggling scandal is another example of the culture of corruption in a long line of similar events. But it is unclear why the Mongolian government only uncovered this so-called open secret of coal smuggling within its own party now.

Coal smuggling has been on the radar since at least 2018 when former member of Mongolia’s parliament from Omnogobi province, Luvsang Enkhbold, warned about millions of tonnes of coal missing in customs declaration forms. Beyond pointing to internal fighting for power within the MPP, the scandal may serve as a convenient crisis to make the prime minister look good in anticipation of the elections in 2024. The scandal could distract the Mongolian population from bigger protests calling for genuine reform.

About the author:

• Gantulga Munkherdene is Senior Lecturer at the Department of Anthropology and Archaeology, National University of Mongolia.
• Ariell Ahearn is Departmental Lecturer in Human Geography at the University of Oxford.

Source: This article was published by East Asia Forum