Scoping Study on Contract Transparency in Mongolia

This report presents the scoping study on Mongolia’s contract transparency, undertaken by the Natural Resource Governance Institute (NRGI). The study was made possible with the support and funding of the Extractive Industries Transparency Initiative (EITI) International Secretariat and the European Bank for Reconstruction and Development (EBRD).

Mongolia's mining sector is the backbone of its economy, significantly contributing to gross domestic product, exports, government revenue, and foreign investment. It creates high-paying jobs and boosts local economies, especially in the mining regions. Coal, copper, gold and other minerals are major government revenue drivers, generating export earnings of USD13.9 billion in 2023. This constitutes 92 percent of the country’s total exports and 29.9 percent of the government revenue. While Mongolia’s oil production is relatively small, it still contributes to government income and benefits local communities. In 2023, the oil sector produced 4.7 million barrels of crude oil, generating USD364.7 million in export earnings and accounting for 1.3 percent of government revenue.

Despite its economic importance, Mongolia’s mining sector faces numerous challenges that hinder its development. Corruption scandals have plagued the sector, while environmental and social issues remain significant. A widespread perception persists that Mongolia does not receive its fair share of mining profits. Frequent policy changes, often driven by populism rather than thorough analysis, have eroded investor confidence. This is evidenced by ongoing disputes with investors, a decline in new foreign direct investment, and a lack of new discoveries and projects.

Recognizing the mining sector’s vital role in Mongolia's economy and the need for good governance, the country joined EITI in 2006 to promote transparent and accountable management of the extractive sector. The EITI sets a global standard for transparency and good governance in the extractive sector. It requires companies and governments to disclose detailed information on revenues, payments, production volumes, commodity sales, mining company ownership, and extractive contracts governing relationships investors. Since January 2021, the EITI Standard mandates full disclosure of contracts and licenses, enhancing transparency and allowing citizens to understand the impact of extractive projects on their nation.

Contract disclosure is a crucial ingredient of good governance and transparency in the extractive sector, benefiting all stakeholders involved. For instance, it enables governments to strengthen regulatory systems and ensure efficient oversight, mitigates reputational risks for companies and fosters trust with other stakeholders, and empowers citizens to hold governments and companies accountable. This transparency allows citizens to monitor revenues and other areas of impact of mining on their country.

Contract disclosure in Mongolia has evolved significantly both within and outside of the EITI framework. The latest EITI Validation Report indicates that Mongolia has largely met EITI requirements by publishing numerous contracts on a dedicated portal. However, there is room for improvement in government policies and practices regarding full contract disclosure.

Domestic legislation has also evolved, mandating the disclosure of certain mining sector contracts. Additionally, initiatives like the Open Government Partnership, prioritize transparency in extractive sector contracts. Finally, some companies, particularly those listed on stock exchanges, disclose contracts voluntarily due to legal requirements, or to mitigate corruption risks and public perception issues.

While the government and companies have published many contracts, it remains unclear if all relevant contracts are disclosed. The disclosure process also lacks clear regulations and a systematic approach, as discussed in the next sections of this study.