Scoping Study on Extractive Sector State Owned Enterprise Disclosures in Mongolia

This report presents the scoping study on the disclosures of Mongolia’s state-owned mining enterprises, conducted by the Natural Resource Governance Institute (NRGI). The study was supported and funded by the Extractive Industries Transparency Initiative (EITI) International Secretariat and the European Bank for Reconstruction and Development (EBRD).

Mongolia's extractive sector is significant for its economy, contributing 31.6 percent of government revenue, 92 percent of export earnings, and 28.2 percent of GDP. A variety of companies operate in the sector, with state-owned enterprises (SOEs) playing key roles in the exploration, extraction, and management of mineral resources. Erdenes Mongol LLC is the biggest player, acting as a holding company. For instance, it holds stakes in the Oyu Tolgoi copper mine (34 percent ownership), Tavan Tolgoi coal mine (65 percent), Shivee-Ovoo coal mine (90 percent) and Baganuur coal mine (75 percent), as well as Erdenet Copper Mine and projects managed by Mongolrostsvetmet. These are all projects exploiting deposits that are defined as “strategic”, meaning that the equity holding in these projects is prescribed by legislation. Erdenes Mongol also has stakes in gold, silver, and uranium exploration and operation companies.

Despite playing a key role in Mongolia’s economy, state-owned enterprises (SOEs) in the mining sector face challenges related to governance and transparency. This is evident in the NRGI’s Resource Governance Index (RGI) scores, where Erdenes Mongol is among the “poor” performers due to its lack of transparency in financial transactions and production. The EITI validation report highlights a need for more comprehensive disclosure on Mongolia's SOEs in the extractive sector. This includes financial relations, spending practices, and corporate governance. In addition, mining SOEs have been marred by high-profile corruption and bribery cases over the years. The CEO of Erdenes Mongol, for example, admitted to taking bribes, leading to his dismissal, and most recently a former CEO of Erdenes Tavan Tolgoi, the key coal exporter and a subsidiary of Erdenes Mongol, was convicted of abuse of power. In December 2023, the State Great Hural, or the parliament of Mongolia, held public hearings on the so-called ‘coal theft’ scandal which revealed significant problems associated with SOE coal sales, transportation and tax payment irregularities or outright squandering of public assets. For instance, hearing witnesses testified that a significant number of trucks crossed the border empty, raising concerns that this was a scheme to evade royalty and tax payments. Under these circumstances, the importance of transparency and public scrutiny of SOEs is unquestionable.

The EITI, being a leading initiative to promote good governance in the extractive sector, has long recognized that transparency of SOEs is a crucial element of transparency and good governance in mineral resources. Its 2010 EITI Rules, for instance, emphasized the need for the EITI reports to include all companies including SOEs, and to specifically disclose SOE production in addition to the requirements for all companies. Since then, the Rules evolved into a global standard, and its latest edition, the 2023 EITI Standard, includes many more detailed requirements and expectations on SOE transparency and state participation. Specifically, the Standard states the objectives of EITI in terms of disclosures related to the state participation, defines the scope of the term SOE, and provides a list of specific information that is required, encouraged, or expected to be disclosed under the national EITI reports that are disclosure requirements for all companies. Given that the latest version of the standard was adopted in 2023, countries including Mongolia need to revisit their own documents and plans to ensure that the national EITI reports meet the standard in full, including in terms of disclosure requirements for SOEs.

While EITI is one of the leading initiatives driving reforms and increased disclosures in Mongolia, other initiatives and developments led by the government also contribute to the increased disclosures and strengthening of the transparency of SOEs. For instance, Mongolia is a member of the Open Government Partnership, under which the government pledged to improve the transparency of SOEs. Also noteworthy are the Public Information Transparency Law and Glass Accounts Law. The former details specific information that the government and SOEs are required to disclose to the public, and the latter builds an integrated framework for public reporting of budget entities and SOEs. For example, Glass Accounts contains information on disclosures of individual financial transactions by SOEs, which has led to disclosure of information with granularity that allows all stakeholders to analyze the state of financial affairs at SOEs at an unprecedented level. Another important player that contributes to good governance and transparency of SOEs is the Independent Agency Against Corruption (IAAC). The IAAC leads the implementation of the National Anti-Corruption Program which aims to limit political interference at SOEs, streamlining procurements processes, enhancing transparency and disclosures, and improving clarity of objectives and policies such as dividend policies. 

However, many of these initiatives are not comprehensive in addressing extractive sector governance challenges, and coordination among these initiatives is weak. In that light, EITI remains a key process in the sector with its enhanced global standard, functioning processes, and involved stakeholders. As such, this report will inform EITI stakeholders with the aim of taking the EITI in Mongolia to the next level, focusing on one of the key areas of sector governance, namely SOE disclosures and reporting.