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Mongolia

Make Licenses, Information and Activities of the Companies Transparent and Effective by Government (MN0034)

Overview

At-a-Glance

Action Plan: Mongolia Action Plan 2016-2018

Action Plan Cycle: 2016

Status: Inactive

Institutions

Lead Institution: Financial Regulatory Commission

Support Institution(s): Central Government Authorities in charge of Budget, Finance, Mining and Environmental issues; National Council for Corporate Governance, MNCCI, Erdenes MGL LLC, National portal site for corporate governance, Genial Association of Journalists, Mongolian Radio and Television of the MNB, Mongolian News Channel

Policy Areas

Anti-Corruption Institutions, Capacity Building, Conflicts of Interest, E-Government, Extractive Industries, Fiscal Transparency, Legislation & Regulation, Media & Telecommunications, Oversight of Budget/Fiscal Policies, Private Sector, Public Participation, Records Management

IRM Review

IRM Report: Mongolia Mid-Term Report 2016-2018

Starred: No

Early Results: Pending IRM Review

Design i

Verifiable: Yes

Relevant to OGP Values: Access to Information

Potential Impact:

Implementation i

Completion:

Description

Status quo or problem addressed by the commitment: Transparency of the state-owned enterprises is regulated by the Law on Company and the Law on Stock Market. However to ensure good corporate governance and transparency for state-owned enterprises, it is necessary that changes be made into the Law on Public and Local Ownership. Otherwise, issues surrounding SOE is still prevalent in Mongolia. - Within the framework of establishing a reporting mechanism for the general public about corporate governance under the objective 2 and 3 of the National Programme for Developing Corporate Governance, which was approved by the Government of Mongolia in 2011, Mongolia produced two national reports on corporate governance. Also, the government made significant efforts to be transparent through its national web portal. - Although the central authority implementing the representation of government ownership is a member of the national council, it was not able to pay significant importance to corporate governance issues due to lack of capacity and its interest. - Newly adopted laws on accounting reflected the introduction of international standards in financial reporting. The financial reporting mechanism was on par with international standards, which is important for attracting investors. - The biggest challenge regarding corporate governance is the conflict of interest in the extractive mining agreements. Although Mongolia established a legal environment to ensure transparency of shareholders by the Board of Directors, the transparency requirement has not been fully met. -The media was not able to work actively on corporate governance and transparency issues as a result of lack of professional capacity on corporate transparency and a proper mechanism for ensuring transparency in company information. - Information about rehabilitation efforts by the mining companies is not transparent, and only a few companies develop social responsibility reports on a voluntary basis. Thus, many companies do not pay significant attention to rehabilitation processes, which require sufficient funds. -Due to a lack of consolidated understanding of government ownership by ministries, there is a visible conflict of interest in the process. Therefore, a system to appoint independent members of the board of directors as well as executive management of stated-owned enterprises, based on the fair selection process, is necessary. -The actual owner of the company is not clear unless it is specified in the income statement. Therefore, it is difficult to identify whether there is a conflict of interest. Thus, it is necessary to establish confirmation database of candidates for the Board of Directors and share the information with relevant organisations. Information about individuals with training certification on corporate governance is already on the Corporate Governance National Portal. It is necessary to integrate the information into the IAAC information database to improve monitoring mechanism. National Council is the representative of the private and public sector and can work with the government organisations for developing a list of potential candidates for independent members of the board of directors by clause 79.2 of Company Law. Main Objective: Improve transparency and reporting mechanisms of state owned enterprises to ensure their independence. Brief Description of commitment (140 character limit): Ensure annual financial and operational reporting by companies, develop a comprehensive database to ensure transparency for social responsibility, create a culture in the company to report and disseminate information about the company and use governance as a promotion, make the selection process of independent members of Board of Directors independent from political involvement, make the information of candidates transparent to the public and enable Board of Directors and Executive Directors to make independent decisions and create a mechanism to take accountability for their decisions and provide performance-based incentives.

IRM Midterm Status Summary

13. Transparency of licencing, operational and financial information of state owned companies

Commitment Text:

Ensure annual financial and operational reporting by companies, develop a comprehensive database to ensure transparency for social responsibility, create a culture in the company to report and disseminate information about the company and use governance as a promotion, make the selection process of independent members of Board of Directors independent from political involvement, make the information of candidates transparent to the public and enable Board of Directors and Executive Directors to make independent decisions and create a mechanism to take accountability for their decisions and provide performance-based incentives.

Milestones:

13.1. Establish a comprehensive information system to enable information about corporate governance, activities, and financial reports to be more accessible and transparent.

13.2. Improve the report quality of the State Owned Enterprises to meet international standards.

13.3. Create a comprehensive system to develop and openly report social responsibility reports detailing environmental impact of the operations carried out by companies working in the mining sector.

13.4. Ensure open and transparent reporting of exploitation agreements of the state and public owned enterprises as well as negotiations for a large sum of funding or with conflict of interest.

13.5. Enable regular reporting of activities of the state and public owned enterprises to the public.

13.6. Increase responsible engagement and partnership of the media to ensure transparency at all levels.

13.7. Ensure the announcement for selection of Independent Members of the Board of Directors and Executive Management of State Owned Enterprises are made public. While also creating a mechanism to enable transparency of the information of all candidates and make selection of suitable candidates with the participation of independent players and submit the list to a commission of the relevant company to make the final selection.

13.8. Make information about direct beneficiaries and owners of the state owned enterprises and natural resources transparent and open to the public.

13.9. Ensure Board of Directors of the companies with state ownership can make decisions independently and take responsibility for the decisions that they make. Enable them to work independently from political involvement and introduce performance-based incentives for them.

Responsible institution: Financial Regulatory Commission

Supporting institutions: Central Government Authorities in charge of Budget, Finance, Mining and Environmental issues. National Council for Corporate Governance, MNCCI, Erdenes MGL LLC, National portal site for corporate governance, Genial Association of Journalists, Mongolian Radio and Television of the MNB, Mongolian News Channel

Start date: 30 June 2016

End date: 30 June 2018

Editorial Note: This is a partial version of the commitment text. For the full commitment text please see the Mongolia National Action Plan:

https://www.opengovpartnership.org/wp-content/uploads/2001/01/Mongolia-NAP2-Final-Eng.pdf.

Context and Objectives

There remains a general lack of transparency for state-owned enterprises and companies in Mongolia, including the Board boards of directors and financial reports. For example, Mongolia’s 2016 EITI report found that only seven state-owned enterprises provided information on their boards of directors.[Note125: Mongolia Extractive Industries Transparency Initiative, Mongolia Eleventh EITI Reconciliation Report 2016, November 2017, pg. 116, https://eiti.org/sites/default/files/documents/2016_m_eiti_report_final_english.pdf. The information on board of directors is available in Appendix 24.a, available in Excel format here: http://www.eitimongolia.mn/en/reconciliation-report.] This commitment seeks to enact of number of activities designed to mitigate conflicts of interest and lack of transparency in Mongolia’s state-owned enterprises, particularly in the extractives sector. More specifically, the commitment seeks to encourage Mongolian companies to comply with the Company Law, which regulates relations with respect to the establishment, registration and organization of Mongolian companies, including the boards of directors,[Note126: Mongolia Company Law, available at: http://www.ebrd.com/downloads/legal/securities/mongcomp.pdf.] as well as the Law on Environmental Impact Assessment, which requires the disclosure of environmental impact assessments and rehabilitation reports by mining companies.[Note127: Law of Mongolia on Environmental Impact Assessments, available at: http://admin.theiguides.org/Media/Documents/LawEnvironmentalImpactAssessments.pdf.] Additionally, the commitment calls for improving the reporting quality of state-owned enterprises to meet international standards, increased engagement with the media to ensure transparency, and to ensure that the boards of directors of state-owned companies are able to work independently from political involvement. Though not a specific milestone, the commitment also plans to integrate the information with the Independent Authority Against Corruption (IAAC), the country’s anticorruption agency. The open reporting of social accountability by state-owned enterprises (Milestone 13.3) continues the theme of Commitment 3.3.1.6 from the previous action plan (a starred commitment), which called for publication of information on actions that could be harmful to the environment or to people’s health.

Establishing a database of confirmed candidates for the board of directors and openly disseminating social accountability reports to the public make the commitment relevant to the OGP value of access to information. The milestones include deliverables that are mostly verifiable and measurable, though it is unclear how the government will partner with the media to ensure transparency (Milestone 13.6). The initiative to make direct beneficiaries and owners of state-owned enterprises and natural resources open to the public (Milestone 13.8) is essentially the same objective Commitment 12. Taken together, the activities of this commitment could have a moderate potential impact on access to information in Mongolia.

Completion

While the National Council for Corporate Governance operates the http://www.governance.mn website. However most of the available information pre-dates the implementation period of the second action plan.

According to the 2015 Law on Accounting, state-owned enterprises must comply with the International Financial Reporting Standards (IFRS).[Note128: Ernst & Young, 'Mongolia’s new Accounting and Auditing Laws', https://www.ey.com/Publication/vwLUAssets/ey-mongolia-new-accounting-and-auditing-laws/%24FILE/ey-mongolia-new-accounting-and-auditing-laws.pdf.] While this law has been in force since January 2016, in practice, many enterprises do not comply due to the cost and difficulty of doing so. In December 2016, the Ministry of Finance developed and approved three new accounting and auditing standards to meet the IFRS standard. Ninety accountants from state-owned enterprises attended a three-day training workshop, which introduced these new standards.

The 2011 Company Law requires companies to hold a nomination committee to evaluate the activities of the board of directors.[Note129: Company Law of Mongolia, available here: http://www.wipo.int/edocs/lexdocs/laws/en/mn/mn011en.pdf.] However, according to Transparency International Mongolia, none of the ten largest listed companies disclose having a nomination committee and no company disclosed performing regular board of director evaluations.[Note130: Transparency International Mongolia, Business Integrity Country Agenda Mongolia, 201, pg. 81, http://resource3.sodonvision.com/transparency/file/2018/6/777tu5j5du77p212keb33zd6k/BICA_ENG_FINAL.pdf.] Additionally, there is no evidence of implementation of the specific activities outlined in this commitment regarding board of director transparency. Therefore, the overall level of completion is considered limited at the first year of the action plan.

Next Steps

While this commitment’s overall goal of increasing transparency of state-owned enterprises is laudable, the individual activities encompass too wide a range of issues for one single commitment. Moving forward, the IRM recommends carrying the commitment forward to future action plans, but dividing it into three separate commitments. The first could focus on the financial reporting by state-owned enterprises, including but not limited to environmental impact reports and exploitation agreements. It should also make clear what enforcement mechanisms will be put in place to oblige state-owned enterprises to provide this information.

The second commitment could focus on transparency in corporate social responsibility, including the publication of clean-up and environmental rehabilitation reports and the creation of mechanism for civil society to monitor these efforts. The third commitment could address conflicts of interest by focusing on public disclosure of recruitment processes for positions of ownership on an ongoing basis. This commitment could also involve the creation of a civil society monitoring mechanism given the difficulties of identifying the owners of state-owned companies.


Commitments

  1. Mobile Application for Citizens Feedback and Requests

    MN0022, 2016, E-Government

  2. Starred commitment Improve Provision and Quality of Education and Health Services

    MN0023, 2016, E-Government

  3. Civic Engagement in Decision Making

    MN0024, 2016, Legislation & Regulation

  4. Transparent Funding of Political Parties

    MN0025, 2016, Anti-Corruption Institutions

  5. Create Favourable Environment for Media and Journalism

    MN0026, 2016, Civic Space

  6. National Action Plan for Combating Corruption

    MN0027, 2016, Anti-Corruption Institutions

  7. Transparency of Loans and Aid from Foreign Countries

    MN0028, 2016, Aid

  8. Online Registration of VAT

    MN0029, 2016, Capacity Building

  9. Improve Glass Account System

    MN0030, 2016, Anti-Corruption Institutions

  10. Make Government Procurement Process Transparent

    MN0031, 2016, Anti-Corruption Institutions

  11. Transparency of Contracts of Public Resource Exploiting

    MN0032, 2016, Anti-Corruption Institutions

  12. Information Transparency of the Owners of the Entities with Rights to Use Mineral Resources

    MN0033, 2016, Anti-Corruption Institutions

  13. Make Licenses, Information and Activities of the Companies Transparent and Effective by Government

    MN0034, 2016, Anti-Corruption Institutions

  14. Monitor and Ensure Implementation of Information Transparency and Information Access Right Act by Establishing National Information Transparency Committee and Creating Structure of Information Commissary.

    MN0001, 2014, Legislation & Regulation

  15. Modernize Performance Indicators of Information Transparency of Public Organizations Into ―”Citizen Targeted” Ones.

    MN0002, 2014, Capacity Building

  16. Starred commitment Launch ―Transparent Account Systemǁ in Order to Enable Consistent, Transparent Reporting to the Public and to Provide Comprehensive Information on Budget Revenue Collection, Income and Expenditure Details, as Well as Public Procurement and Investments.

    MN0003, 2014, Fiscal Transparency

  17. Develop Central Information Database of Minerals, Oil, and Land Tenure License Owners, Open to the Public.

    MN0004, 2014, E-Government

  18. Ensure Transparency All Agreements on Investment, Stability and Production- Sharing of Public-Owned Resources Such as Water, Minerals, Oil and Land.

    MN0005, 2014, Extractive Industries

  19. Starred commitment Publish List of Mandatory Public Information on Environment Such as Information Regarding Any Action Harmful to Natural Environment and People’S Health.

    MN0006, 2014, Environment and Climate

  20. Starred commitment Disclose Information to the Public Relating to Foreign Loan Assistance Projects and Programs, Including the Total Amounts, Terms, Payback Duration and General Provisions Related to the Loan Rate, Board Members, and Implementation Bodies. Information About the Terms of Implementation of the Projects as Well as General Conditions of Contracts Between Suppliers and Buyers Shall Be Disclosed as Well.

    MN0007, 2014, Aid

  21. Disclose Budget Funded Procurement Contracts Above 80.0 Million MNT

    MN0008, 2014, Open Contracting and Procurement

  22. Ensure Civic Engagement in Planning and Developing Public Services at Central and Local Levels by Introducing Communication Channels Such as Organizing e-Conferences, Public Hearings, and Open Meetings.

    MN0009, 2014, Public Participation

  23. Launch “Smart Government” Program, for Delivering e-Public Services to the People Regardless of Distance and Location Through the Public Service Portal.

    MN0010, 2014, E-Government

  24. Create a Single Access Public Service for Citizens Without Requiring Supplementary State Registered Data, Based on Principles of “One Citizen-One Public Servant”.

    MN0011, 2014, Public Service Delivery

  25. Improve and Develop Smart e-Service Capability for “One Window-Public Service” and Introduce It as a Standard Unit of Public Service.

    MN0012, 2014, E-Government

  26. Increase Number of “Public Service Online Machines” at Local Levels for Delivering Public Services to Individuals in Remote Areas, as Well as Increase the Content of Its Data.

    MN0013, 2014, E-Government

  27. Report Public Feedback on Government Performance Received from the Government’S “11-11” Center. Government Shall Also Establish a Data System That Responds to and Tracks Petitions and Enquiries.

    MN0014, 2014, Public Participation

  28. Develop and Publish E-Mapping of Crime Occurrence.

    MN0015, 2014, E-Government

  29. Create a United Information Database on Law Enforcement Activities, Crimes and Violation Records, and Ensure That the Database Is Accessible to Relevant Bodies.

    MN0016, 2014, E-Government

  30. Introduce a System of Random Disclosure to the Public of Asset and Financial Statements of Any Public Servants.

    MN0017, 2014, Asset Disclosure

  31. Publish the Asset and Financial Statements of Officials Who Work in Organizations with a High Likelihood of Corruption Index on Websites and Ensure Citizen Monitoring.

    MN0018, 2014, Asset Disclosure

  32. Create Regulation That Repeals Decisions Made Without Due Participation of Citizens and Contradict Public Interests, as Well as Hold the Officials at Fault Accountable.

    MN0019, 2014, Legislation & Regulation

  33. Deliver the Draft Laws, Acts, Amendments and Administrative Rules to Public Attention in Due Time. in Particular, Create an Opportunity for People to Access Such Information from “Public Service Online Machines”, Citizens Chambers, and the Public Libraries at Each Provincial Level.

    MN0020, 2014, Capacity Building

  34. Strengthen the Capacity of Citizens by Implementing Certain Projects to Enhance Legal Knowledge of Target Groups Using Simple Language.

    MN0021, 2014, Capacity Building