Advancing Extractive Industry Transparency (MN0057)

What problem does the commitment aim to address? Natural resource activities, public control over revenue management and governance through transparency, increase accountability, and reduce the risk of corruption and conflicts of interest.

What are the causes of the problem? Mineral resources sector, particularly operational activities of state-owned companies, face high risk of corruption and conflict of interests. Irresponsible mining operations, environmental and human rights violations are influencing in unsupportive attitude towards mining, and becoming the source of misunderstandings and conflicts among local community and society. The implementation of the Extractive Industry Transparency Initiative, which has been successfully implemented by Mongolia since 2006, has clearly weakened in recent years due to the fact that the duties and responsibilities of the public and private sectors related to ensuring transparency are not guaranteed by law. Translucency in transparency and governance is reducing competitiveness and showing negative impact to the investment.

What has been done so far to solve the problem? Concept paper of the Law on the Extractive Industries Transparency has been approved. The Ministry of Mining and Heavy Industry drafted the Law on the Extractive Industries Transparency in 2020, however the draft was not submitted to the parliament. This is the third draft. The Ministry of Justice and Home Affairs additionally included the issue of ensuring transparency of other natural resources, such as land, forests, water to the minerals issues and amended draft to the Law on the Extractive Industries Transparency and currently receiving public comments on the draft.

What solution are you proposing? 1.The government will be responsible to implement corresponding activities to ensure transparency; 2.Legislate the composition and operation of an integrated database for the extractive industry transparency and link it to the state open database; 3.Define the functions of government institutions related to the formation of the database; 4.Ensure the transparency of the beneficial ownership in the extractive industry; 5.Ensure transparency of the contract; 6.The transparency of the National Wealth Fund activities, income and expenses shall be legalized; 7.Ensure transparency for state-owned legal entities operating in the extractive industry; 8.Determining the alternation of mineral and oil licensing areas, granting special licenses, signing contracts related to the use of natural resources, approving exploration results reports, technical and economic evaluations, and granting land and water use licenses, all decision-making process will be legislated to ensure transparency; 9.Establish civic engagement mechanisms to ensure transparency, determine industry policy, and monitor the implementation of law. 10. Complete activities to ensure transparency and clarify the financial sources. In determining national and local budgets, policies and regulations for the extractive industry, conditions will be created to oversee industry information, calculations, and research. 11. Determine the responsibility for the violation of the duty to ensure transparency.

What results do we want to achieve by implementing this commitment? State, local, private and mixed companies operating in the extraction and natural resources related activities, their contracts with subcontractors and financial information of supply and purchase shall be kept open and subject to public scrutiny. This will increase the profitability and benefits of projects in the natural resources sector.

Milestones | Expected Outputs | Expected Completion Dates

1.1.Submit the Law on the Extractive Industries Transparency for Parliament discussion. | -The law will be approved. -Unified database for the extractive industry will be created and open data will be compiled. | 2025

1.2.Clarify the functions and responsibilities of relevant government, state, local, private, and mixed companies in the field of transparency, and accustom to upload information related to its activities to the database in the form of open data; The information made public through the report of Mongolia's EITI is reported directly by the government agencies through their websites. | Government, state, local, private, and mixed legal entities will disclose relevant information openly. | 2024-2025

1.3.Funding for transparency implementation activities should be included in the state budget | The state budget will be approved, which includes the financing of activities for the implementation of transparency. | 2025

Action Plan Review

Commitment 1. Advancing Extractive Industry Transparency

Ministry of Mining and Heavy Industry, Ministry of Justice and Home Affairs, Ministry of Environment and Tourism, Ministry of Digital Development and Communications, Publish What You Pay, EITI National Council.

For a complete description of the commitment, see Commitment 1 in https://www.opengovpartnership.org/documents/mongolia-action-plan-2023-2027-december.

Context and objectives

Proposed by the Open Society Forum and the Mongolian Natural Saving Fund, [1] this commitment aims to get the Extractive Industry Transparency Bill approved by 2025. [2] It also plans to establish an integrated extractive industry database and a government responsibility to allocate appropriate budget for extractive sector transparency activities.

The extractive sector is central to Mongolia’s economy. The Extractive Industries Transparency Initiative (EITI) estimates that the industry contributes 25% of Mongolia’s gross domestic product, 30% of national budget revenue, 42% of investment, 57% of industrial production, and 90% of exports. [3] In addition to private corporations, the government also conducts its own mining operations through shares in mining companies, including the state-owned Erdenes Mongol LLC and its subsidiaries. A high level of corruption and weak transparency measures prevent Mongolia from enjoying the full benefits of its mineral resources, with the government incurring billions of dollars in debt. [4] While the government has introduced some pieces of anti-corruption legislation, they are insufficiently enforced and operationalized, and undermined by inconsistent data governance and disclosure practices, according to a U4 Anti-Corruption Resource Centre publication. [5] The 12.8 billion USD theft of coal exports in 2022, which led to weeks of mass protests, [6] further underlined the need for reform. Regarding EITI, as of 2022, it noted weaker multistakeholder oversight—attributed to a variety of factors, like the transfer of EITI’s secretariat from the Prime Minister’s Office to the Ministry of Mining and Heavy Industry (MMHI), strict COVID-19 lockdowns, and general constraints on freedom of expression and access to government processes. [7]

Extractive industry transparency has been a consistent theme across all four of Mongolia’s previous action plans. Commitments in the first two action plans strengthened beneficial ownership transparency by disclosing extractive contracts and activities. [8] Subsequent commitments in the third and fourth action plans began working towards institutionalizing these reforms through development of an Extractive Industry Transparency Bill but did not pass it into law. [9] Altogether, IRM found that these commitments marginally improved extractives transparency with gaps in data verification, efficiency of the reporting mechanism, and public access to relevant information and databases. [10] Across action plan cycles, stakeholders considered passage of the bill to be an important enabler of extractives sector reform.

Potential for results: Substantial

EITI Mongolia National Council, Steps Without Borders, and Transparency International consider passage of the Extractive Industry Transparency Bill to be fundamental to transparency in the extractive sector, and a key step for anti-corruption. [11] The bill is expected to provide the legal basis for an integrated extractive industry database. To ensure compliance, it would introduce a ten-day limit for government agencies to provide specific data for publication on the database and a five-day limit to update existing data upon any changes. [12] It is expected to result in regular publication of currently unavailable extractive sector information and ease beneficial ownership reporting through automatic reporting. [13] The bill also aims to improve the legal framework for disclosing contract information, National Wealth Fund income and expenditure, and state-owned companies’ activities. This is of particular importance as the Minerals Law authorizes the government to take controlling interests in mining companies in line with its investment using public funds. [14] Furthermore, the intended corporate liability provisions also represent an important step toward stronger governance—as long as they include effective enforcement measures. The bill would also institutionalize a public participation mechanism in governing the extractive sector. The legislation would introduce provisions on mandatory compliance with the global EITI standard, allocate funding to support the EITI secretariat and activities, formalize civil society membership in the EITI National Council, [15] and transfer leadership of the EITI process from the MMHI back to the Prime Minister’s Office. [16] Key stakeholders noted this as one of the factors that had diminished government support for extractive transparency initiatives. [17]

The commitment seeks to capitalize on momentum to get the bill passed. In the previous cycle, the MMHI completed a draft of the Extractive Industry Transparency Bill that was subsequently approved for submission to the parliament by a working group that included the Ministry of Justice and Home Affairs (MOJHA), the Ministry of Finance (MOF), and the Ministry of Environment and Tourism (MOET). [18] However, Parliament did not approve the bill by the end of the implementation period. [19] Government and civil society stakeholders attributed this failure to the MMHI’s lack of commitment to prioritizing the bill [20] as well as overarching privacy concerns. [21] The MOJHA took over responsibility for developing the bill in July 2022 and had published the draft on its website and organized consultation meetings with civil society during the previous action plan cycle. [22]

Early into the implementation period of the current commitment, the Open Society Forum noted that the MOJHA was “very open to collaborate” and had already begun multistakeholder consultations on the bill. [23] It is important that stakeholders mitigate potential risks of the legislation continuing to stall, especially in anticipation of a political transition following the June 2024 parliamentary election. For instance, amending existing government resolutions on the EITI framework could provide an alternative pathway toward the reforms targeted by the bill. [24]

Following passage of the bill, the commitment plans for early implementation. To establish an integrated extractive industry database, the commitment’s second milestone seeks to streamline intra-governmental coordination at all administrative levels. This would improve public access by collecting information that is not presently available and consolidating published data currently spread across different authorities’ platforms. This includes information on extractive licenses, rehabilitated land area, environmental protection expenditures, procurement and contracting data, land and water use permits, environmental and social impact assessments, environmental management plans and reports, and mineral exploration, production, sales, prices, revenues, taxes, royalties, and fees. [25] According to EITI Mongolia, the database will be managed by the EITI National Council; the MMHI will continue supplying information on mineral resources and the MOET will supply information on water, forest, wildlife, and plant resources. [26]

The commitment’s third milestone guarantees government funding to support these transparency initiatives. EITI Mongolia expects this to address barriers stemming from understaffing and heavy workloads to maintain compliance with the EITI reporting mechanism and standard. [27] The Open Society Forum notes that this is especially crucial in fulfilling the 2019 Constitutional amendments’ mandate to utilize income derived from natural resources fairly and justly for the benefits of citizens through the Future Heritage and the Sovereign Wealth Funds. [28] Representatives of the MMHI and MOJHA as well as the Mineral Resources and Petroleum Authority did not reply to requests for comment on this commitment. [29]

Opportunities, challenges, and recommendations during implementation

Ten years since Mongolia’s first OGP action plan, this commitment has the potential to realize the long-sought goal of improved extractive sector governance. Passage of the Extractive Industry Transparency Bill would institutionalize many individual reforms that were introduced in prior action plans. These range from greater contracting and reporting transparency, participatory oversight mechanisms, and stronger information disclosure, which recorded some progress during implementation of previous commitments, but as yet lack consistency and sustainability due to the absence of a strong legal basis.

However, potential political transition following the scheduled June 2024 parliamentary election could force relevant stakeholders to pivot from a legislative track. Failure to act swiftly could set the legislation back, in anticipation of new parliamentary leadership. To enhance implementation of this commitment, the IRM recommends: