Strengthening Extractive Industry Transparency (MN0048)

Statement of public problem Mongolia’s extractive industry is a core economy sector making up alone 20-30% of fiscal revenues.1 The country’s long-term development strategy Vision 2050 defines the mining sector to hold the position for the coming 30 years.2 The important role of the sector makes promoting good governance through improved transparency and public participation, and strengthened government and private sector accountability priority issues for the industry. Mongolia scored 70 points out of 100 for the Natural Resources Governance Index in 2021 with recommendations on strengthening transparency. It is a prime necessity that the Ministry of Mining and Heavy Industry (MMHI) and the Mineral Resources and Petroleum Authority (MRPA) uphold open data norms by expanding the use of digital information and, in particular, providing public access to a better disaggregated information on licensing, industry production and sales in digital formats allowing data processing.3 Although the MRPA places the license holder information on its website, the practice does not meet the Extractive Industry Transparency Initiative (EITI) disclosure requirements for the completeness of information and machine-readable digital formatting. Furthermore, the production and sales information should be more detailed than the project-level data currently furnished, and discrepancies in the Customs Office, MRPA and National Statistical Office (NSO) data need to be eliminated. Although Mongolia has been implementing the EITI since 2006, the failure to put in place a more effective legal framework is resulting in challenges such as weak government monitoring and mainstreaming of open data processes, and lapses in transparent contract management and public disclosure of beneficial ownership information. Hence, the pressing needs are as follows: • to assure transparency and public monitoring for each and every stage of natural resources management starting from exploration to production and to revenue allocation; • to prevent corruption and conflict of interest in the extractive uindustry by creating an enabling business environment for fair competition and to expand sector development by attracting investment; • to improve public information and public debate for better natural resource management policy and decision making process.

Commitment definition Adopt a Mineral Resouces Transparency Law to lay legal grounds for establishing international transparency standards in the sector, assuring due disclosure of contract management and beneficial ownership information, strengthening the governance of wholly or partially state- owned enterprises and guaranteeing civil society participation in decision-making.

Contribution to addressing public problem - Submission of the draft Mineral Resources Transparency Law to the Parliament for deliberations at the Autumn Session 2021. - Establishment of an integrated mineral resources information system: It will contain comprehensive information and data such as minerals and oil exploration and exploitation licenses; land and water use permits; environmental and social impact assessment reports; environmental management plans and reports; mineral resources reserves, exploration, production and sales, prices and revenues data; taxes, royalties and fees paid to state and local budgets; rehabilitated land area and environmental protection expenditures; all contracts awarded by public agencies for subterranean resource exploitation, especially procurement and sales contracts of state-owned enterprises; benefical owners information; financial transactions, transfers and budget allocations done with public agencies; the Future Heritage Fund income and expenditure, efficiency assessments and financial reports. - Project operations transparency and reporting: Each active project will be providing comprehensive and disaggregated data on the extracted, processed and marketed products; royalties and land and water use fees; affected land area, environmental rehabilitation expenditures and other relevant matter; - Roles and responsibilities of relevant public authorities and state-owned companies will be precisely defined for transparency purposes so that they establish a routine process of entering their respective information in the database in open data formats; - Safe and secure information database operation ensured with appropriate technical and technological solutions; - Setting up institutional arrangements ensuring transparency and public engagement in extractive industry policy dialogue. The definition of roles and responsibilities of civil society representatives in the EITI National Committee by the proposed mineral resources transparency law will ensure their effective participation in the extractive sector’s policy planning and implementation.

Relevance to OGP values • Advances transparency and access to quality information • Strengthens public engagement in government authorities decision making, creates favorable environment for civil society; • Reinforces the potential for the public to influence government policy making and creates favourable conditions for civil society activism.

Additional information ● Funding The adoption of a Mineral Resources Transparency Law requires no expense as the feasibility study and other relevant assessments including cost estimations have already been completed. ● Policy coherence The Mongolian Government Action Plan 2020-2024 states: Provision 4.1.8.”Increase information transparency of public sector operations and ensure the participation of citizens and communities Provision 3.2. ”...Develop transparent and responsible mining...”4 The draft Mineral Resources Transparency Law is listed on the agenda of the Parliament’s Autumn Session. ● Consistent with National Development Policy and Guidelines, other sectoral and/or local development programs and plans, e.g. Mongolia’s Vision 2050 Long-term Development Policy’s Provision 4.2.1 sets the goal to develop responsible mining. ● Relevance to the [UN] Sustainable Development Goals Transparency in the mineral resources industry, a core economic sector, not only supports the sector’s development but also has positive impact on other social and economic spheres, thus duly contributing to the SDGs achievement. It contributes to the objectives of poverty and inequality reduction, health and quality education services, gender equality, decent work and economic growth, innovation and infrastructure development, climate change mitigation, dryland ecosystems protection, peace and justice building, and fostering partnerships for development. ● Gender assessment and monitoring The adoption of the proposed Mineral Resources Transparency Law will bring to light the information on male and female labor force participation in mining and oil industries, and programs, projects and other initiatives on women’s participation and employment implemented under the mining community development agreements. Analysis of these records will contribute to identifyng the extractive industry’s gender impacts and formulating appropriate policy responses.

Target definition An effective legal environment is in place to ensure optimal use of the benefits of natural resources for sustainable development and their just and fair distribution to all citizens today and in the future, and to guarantee the implementation of the people’s constitutional right to know as true owners of the natural wealth.

Follow-up actions ● Assessment of the new law’s implementation and effects; ● Public information and communication activities to promote the law and its implementation; ● Review the mineral resources database against the open data requirements; ● Strengthen the capacity of media and civic organizations for open data use and monitoring

Milestone: Start date: End date: - The draft Mineral Resources Transparency Law submitted to the Parliament for Autumn Session hearing and its approval thereof. 2021.6.30 2022.6.30 - An integrated mineral resources information base with open data set up 2021.6.30 2022.6.30 - Roles and responsibilities of relevant public authorities and state-owned companies defined for transparency purposes to establish a routine process of having them upload their respective information in the database in open data formats. Reports currently available via EITI posted directly on government websites. 2021.6.30 2022.6.30 - Technical and technological solutions identified for safe and secure information database operation. 2021.6.30 2022.6.30 - State Budget financing secured for the establishment of transparency systems. 2022.10.1 2022.11.15 - Mechanisms and structures established in the extractive industry to strengthen transparency and engagement of civic organizations in sectoral policy formulation and decision making processes. 2022.6.30 2023.6.30

Action Plan Review

Commitment 1. Extractive Industry Transparency

For a complete description of the commitment, see Commitment 1 in Mongolia’s 2021-2023 Action Plan.

Context and objectives:

In Mongolia, the extractive sector is a central component of the national economy, constituting 24% of the GDP in 2019. [1] Mongolia has participated in the Extractive Industries Transparency Initiative (EITI) since 2006 and became the second country to meet a satisfactory level of progress in implementing EITI standards in 2018. [2] This commitment aims to strengthen extractive sector transparency by passing the Mineral Resources Transparency Law and establishing an integrated mineral resources information system. This commitment aligns with the OGP value of transparency, as it plans for routine publication of open data on the extractives sector.

Under the previous action plan, a Mineral Resources Transparency Bill was drafted in early 2020 by the Ministry of Mining and Heavy Industry, and later re-drafted and finalized in June 2021, with input from the Asian Development Bank. However, passage of the bill was delayed. [3] Parliament has taken a cautious approach to the bill, as it applies to all extractive subsectors (oil, gas, mining, etc.), in comparison with the other currently pending extractive sector bills, which focus exclusively on the mining sector. [4]

Potential for results: Substantial

Prior to this commitment, EITI reports were the only publicly available source of beneficial ownership information in Mongolia. In the 2019 EITI report, only 291 of 2,093 companies published some beneficial ownership information, [5] although many instead provided legal ownership information. (For context, a legal owner holds the company’s legal title under their name, while a beneficial owner receives the benefits of ownership despite the title remaining under another’s name). To date, half of extractive sector companies (700 companies) have yet to comply with the 2018 amendment to the Law on State Registration of a Legal Entity and the Law on Combating Money Laundering and Terrorism Financing, which mandated all legal entities to report their beneficial ownership information to the Registration Office by January 2021. [6] This reported information is not publicly available and noncompliant companies have previously been able to negotiate with government authorities to minimize consequences for non-compliance.

The draft bill and proposed integrated mineral resources information system should, in theory, address these issues. According to EITI Mongolia, the bill requires mandatory compliance with the global EITI standard, including clear sanctions for noncompliance, and foresees the official establishment of the Mongolia EITI national council and secretariat, with state budget allocations. Under the intended legislation, releasing beneficial ownership information would be required to obtain permits to operate in Mongolia. The bill would also formalize civil society membership in the EITI National Committee, guaranteeing their participation. [7] EITI Mongolia and Steps Without Borders consider passage of this bill to be fundamental to transparency in the extractive sector. [8]

The legislation would also mandate routine publication of an array of open extractive sector information, some of which has not previously been publicly available. This information includes minerals and oil exploration and exploitation licenses; land and water use permits; environmental and social impact assessment reports; environmental management plans and reports; mineral resources reserves, exploration, production and sales, prices, and revenue data; taxes, royalties, and fees paid to state and local budgets; rehabilitated land area and environmental protection expenditures; all contracts awarded by public agencies for subterranean resource exploitation, especially procurement and sales of state-owned enterprises; financial transactions, transfers, and budget allocations done with public agencies; and the Future Heritage Fund income and expenditures, efficiency assessments, and financial reports. [9] The government intends to incentivize companies’ publication of this information by easing automatic reporting, continuing to acknowledge compliant companies, and passing a Ministerial Order. [10] However, the draft bill does not include a verification mechanism for information released. The Ministry of Mining and Heavy Industry did not reply to requests for comment on this commitment. [11]

Opportunities, challenges, and recommendations during implementation

Under the previous action plan, delays within parliament postponed passage of the Mineral Resources Transparency Law. Moving forward, passage will require identifying parliamentary champions, as beneficial ownership transparency was not high on the agenda of political groups or members of parliament in 2021. [12] As mandated extractive sector information begins to be released, verification of the information may prove challenging. The following recommendations can facilitate effective implementation of this commitment:

Results Report

Commitment 1. Extractive industry transparency

During the implementation period, the Ministry of Mining and Heavy Industry used the existing EITI database to build a new mineral resources information database in an open data format, with support from the World Bank. [1] However, civil society stakeholders view the EITI database as more comprehensive and instead advise integrating the databases. [2] Regarding the commitment’s key objective, the Extractive Industry Transparency Bill (formerly the Mineral Resources Transparency Bill) was not approved by the end of the implementation period. The Ministry of Mining and Heavy Industry began drafting the bill, which was coupled with public discussions and efforts by the Ministry of Justice to include sectors like water resources, forest commodities, and game hunting in drafting. [3] A legal working group, which also included the Ministry of Finance and the Ministry of Environment, approved the bill. Despite the Speaker of the Parliament’s public support, cabinet approval stalled. [4] Civil society stakeholders noted that without passage, Mongolia continues to rely on foreign funding for national extractive transparency initiative activities. [5] While the draft bill does not mandate government budget allocation, civil society believes it would increase the likelihood of such allocation and also attract more sustainable international support. [6] This reform effort remains vital to anti-corruption in Mongolia, with weeks of protests in 2022 following reports of theft of USD 12.8 billion of coal exports through price discrepancies between 2013 and 2019. [7]