Newly Implemented Law Gives Mongolians Visibility Into State Mining Companies

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In 2020, Mongolian citizens received dividends from Erdenes Tavan Tolgoi, a state-owned coal miner, after many years of holding a part of the shares in the company. This showed that citizens can directly benefit from extractive state-owned enterprises (SOEs). However, this case was an exception rather than regular practice, as many SOEs are running at losses, have been involved in corruption scandals, and have accumulated debts at alarming rates (as much as 40 trillion tugrugs, or around the country’s gross domestic product). SOE governance issues have been at the top of the policy agenda for some time and the parliament is planning to discuss and amend the State and Local Property Law which regulates SOEs.
 
To contribute to the reforms, NRGI published an independent assessment of Erdenes Mongol, the state-owned company that controls major mining and mining linked projects in Mongolia, in June 2019. Our findings led us to recommend that the company increase its transparency, including by improving its compliance with Mongolia’s Glass Accounts Law. Adopted in 2014, this law sets information disclosure requirements for government entities, including SOEs; the information is disclosed through a centralized data portal along with the individual companies’ websites.

Specific disclosure requirements differ for various types of SOEs. At a minimum, SOEs must disclose their procurement plans and reports. Fully state controlled companies must disclose a host of other data including annual budgets, procurement-related tenders, audit reports, borrowing and information on staffing. Most importantly, they must disclose detailed data on individual cash transactions above the relatively low threshold of five million tugrugs (approximately USD 1,750).
 
This transparency law had been poorly implemented until 2020. Perhaps in relation to increasing involvement of SOEs in major mining projects, the new government heard calls from the opposition and civil society actors for improved implementation of the law. Many companies started adding thousands of records to the data portal. We at NRGI supported the Council for Sustainable Development and Social Responsibility (CSS) to monitor compliance by mining SOEs. The CSS’ work confirms that, despite some problems, the level of disclosures by SOEs picked up significantly.

The disclosures can be illuminating. Some of the biggest SOEs in mining—such as Erdenes Mongol, copper producer Erdenet, fluorspar and gold miner Monrostvetment, and the country’s largest coal producer, Erdenes Tavan Tolgoi—have made their financial and operational information public, many of them for the first time. Mongolian citizens now have unprecedented visibility into the financial performance of the top mining companies; they can learn about who buys from the companies, who the companies’ biggest suppliers are, and the sheer size and variety of SOEs.

Citizens’ interest in SOE disclosures through the Glass Accounts Law has added to the momentum. After it was revealed that an SOE paid for a manager’s children’s school tuition, this led the former manager (who is now the current minister of mining and heavy industry) to repay the company. Another SOE announced that it would scrap plans to purchase a luxury Lexus SUV in response to public outrage. These cases demonstrate the value of such disclosures and the importance of informed citizenry. However, as thousands of records become available, finding relevant information may be made difficult by many factors, and a few scandals made public might likely be the tip of the iceberg.

In a recent report, NRGI notes that spending on suppliers in the extractive industries is a major financial flow worth many hundreds of billions of dollars a year globally. At this scale, it substantially affects how much profit and taxable income the extractive industries generate and provides an important opportunity for countries to build local content. It also presents a possibility for corrupt interests to profit.

To grasp this opportunity and mitigate corruption risks, citizens and the government of Mongolia should make the most of Glass Accounts, which is an important gain in transparency. The government making the data simple and easy to analyze is the first step, according to CSS’ monitoring. Using machine-readable formats to collect and disclose data on the Glass Accounts portal will reduce data entry mistakes, and allow users to easily analyze across companies and periods. Civil society organizations and government agencies should also dive deeper into this extensive new data to promote accountability, improved governance and increased performance of SOEs. For this purpose, citizens and officials alike should hone their skills to analyze data; they can do this by improving data visualizations of the portal and by offering training and tools for data analysis, especially for civil society and media representatives who focus on SOE governance issues.

Enhanced data analysis and deeper dives into the trove of available information will serve to inform policy reform decisions on SOEs, which is on the agenda of the current parliament. The data will allow to further discussions on policies related to financing and debt positions of SOEs, and their procurement and sales systems—reforms which would improve the benefits of SOEs for the citizens of Mongolia. Advocates of improved SOE governance in other countries, as well as participants in efforts like the Extractive Industries Transparency Initiative, could also take note of Mongolia’s innovation.