Image placeholder

Contract Transparency a Critical Component of Civil Society Oversight in Mongolia

Extractives policy debates in Mongolia have centered on contracts for quite some time. Ever since the government of Mongolia signed its first significant pact with foreign investors on the Boroo gold project in the early 2000s, stakeholders have argued over whether these contracts are truly beneficial for the country. Ask anybody in Ulaanbaatar about the Oyu Tolgoi or Tavan Tolgoi contracts and you are likely to get responses ranging from fierce support to strict disapproval.

The Extractive Industries Transparency Initiative (EITI) and other pro-transparency measures have increased the availability of information about Mongolia's extractive industries, spurring the publication of key contracts such as those signed with Rio Tinto in 2009 for Oyu Tolgoi, a massive copper project.

At the same time, criticism of mining contracts and local dissatisfaction with mining operations persist. Unfortunately, increased information resulting from transparency measures doesn't automatically equate to improved governance.

As elsewhere, improving the impact of Mongolia's extractive projects is not just about better contracts and proposed legal reforms. It is also very much about effectively monitoring and enforcing existing obligations, which is challenging—more than 1,800 companies hold mining licenses in a vast country with a small and scattered population.

We believe that this is a capacity issue. Oversight actors such as civil society organizations and parliamentarians have historically had limited ability to scrutinize intricate contracts. Their inherent complexity makes it difficult to understand contracts' risks and rewards, even when a contract is publicly available. Improving stakeholder capacity and know-how is essential to increasing the likelihood that transparency will lead to a better understanding of governance challenges and stronger proposals for policy reform. Importantly, Mongolian civil society is keen to meet the challenge.

Accordingly, the Natural Resource Governance Institute (NRGI) and the Open Society Forum, recently organized a training for civil society groups in Mongolia on analyzing and monitoring extractives contracts. The three-day training built on a similar March session with Mongolian parliamentary staff.

During the training, civil society activists were enthusiastic about the importance of contract monitoring and their role in the process. Some participants have already monitored specific mining projects, and the training offered peer-to-peer learning opportunities.

Helping business and government stakeholders to see the benefit of a civil society monitoring role was emphasized. “It is important that we are not fighting against somebody in the administration,” said Enkhjargal Guntev, chairwoman of Hovd Mirror, an organization monitoring a cooperation agreement between the government of the remote Hovd province and coal exporter MoEnCo. “In fact, the administration is a party to a contract, and should also be concerned with [its] proper implementation.”

Without objective monitoring, some participants said, citizens are less likely to benefit from mining. “Without monitoring, people will not know if there are any benefits from mining,” said Batbold Davaasuren, a representative of the Call of Hongor Land civil society group in Bayanhongor province. “And without such knowledge, there can be no understanding of companies' operations, or a genuine objection to their actions.”

An ongoing watchdog role on big mining deals

Mongolian civil society will have plenty of opportunities to put their contract analysis and monitoring skills to work. The country continues to negotiate and enter into important mining contracts that benefit from independent oversight. Most recently, the government negotiated an agreement with Rio Tinto that settled outstanding disputes around the Oyu Tolgoi deal and set the terms for a significant expansion of the project.

The government has also been attempting to negotiate a deal to attract private investment for Tavan Tolgoi, a huge coking coal deposit. (Tavan Tolgoi is currently run by state-owned Erdenes Mongol.) The negotiations with a Chinese consortium stalled due to strong criticism of the proposed deal from different politicians. An active civil society, monitoring and scrutinizing contracts and negotiations, serves as an additional check on the government to improve its negotiation tactics and ensure that deals are good for Mongolia.

Civil society's contract monitoring role is likely to become even more significant with the new requirement under Mongolian law that all mining license holders also enter into a cooperation agreement with local governments. These agreements tend to include the types of obligations (e.g., environmental protections, local development/infrastructure support, job creation) in which civil society and local communities are particularly interested, and which they are well placed to monitor.

Though the central government is developing a model cooperation agreement, it is unlikely to play a major role in negotiating and enforcing these agreements. Local governments also have limited capacity on these fronts. This again underlines the importance of the role of civil society.

No strong rules to assist in scrutinizing pacts

A recurring issue raised during the training was the importance of access to information in monitoring contracts. In response, we provided examples of how civil society organizations in Mongolia could use EITI reports and stock exchange filings in the monitoring of contractual obligations, and explained how civil society organizations in other countries such as the Democratic Republic of Congo have done this. But at a more basic level, contracts themselves should be accessible in the first place.

An interesting case study on this issue came from the Patrons of Huvsgul Lake Group. The movement's monitoring work involved public interest litigation against a major oil company regarding its failure to meet environmental and social obligations. Bayarmaa Byambasuren, the leader of the movement, explained how the efforts of the group quickly turned into a struggle to access an oil production sharing agreement between the company and the government. The organization relied on different means of public advocacy, formal legal action and partnership with government supporters to ultimately obtain the necessary information.

As the Huvsgul case demonstrates, Mongolia lacks strong rules or legal requirements for the disclosure of contracts. The contracts that are disclosed were made public on an ad hoc basis, sometimes through personal requests, political pressure or through stock exchange filings in Toronto or New York. While there are examples of some key contracts disclosed to the public (e.g., Rio Tinto), there is still no binding obligation to do the same with all contracts.

EITI Mongolia has plans to disclose contracts as a part of the organization's reporting process. A legal basis for such disclosure is an important step that stakeholders must undertake. With an expected flurry of local cooperation agreements, contract transparency will be critically important.

Dorjdari Namkhaijantsan is NRGI's Mongolia manager and Amir Shafaie is a senior legal analyst with NRGI.