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Featured Commitment: Mongolia

Compromiso Destacado – Mongolia

OGP Support Unit|

Country: Mongolia
Action Plan: 2014-16
Commitment: Minerals, oil, and real estate database

What makes a country stop issuing licenses to mine and drill for resources and oil at the height of a global financial crisis and a commodities boom? In Mongolia, it’s rampant corruption. But could an OGP commitment help stem the tide of corruption and democratize the notoriously suspect license-granting process?

Mongolia’s mineral wealth is enormous, with copper, gold, uranium, and tungsten deposits, oil fields, and vast expanses of uninhabited land. A 2014 study showed that offices of land use, state mining, and local procurement are among the most corrupt in Mongolia. Individuals with political connections and available funds tend to get all of the licenses. The state website that is supposed to level the playing field is largely useless to those without inside connections.

The corruption was so pervasive that, in 2010, at the height of the commodities boom, the country placed a moratorium on new licenses. When it began issuing licenses again in 2015, the same allegations of corruption and misuse resurfaced.

Enter OGP. In their first OGP National Action Plan (NAP), Mongolia committed to publish databases of ownership of mineral rights, oil drilling rights, and real estate.

The commitment, as it was written, had the potential to transform governance of the sector. The Mongolian public would be able to see who owned what, who gained from mineral exploration, and where the money was going.

But implementation did not go as smoothly as planned. At the end of the two-year plan, progress remained limited. Licensing information has not yet been centralized. While the Mineral Resource Authority has a central directory of mineral licenses (easily visualized here), the Petroleum Authority has stagnated. Last updated in 2015, the Petroleum Authority website shows only 15 companies conducting exploration. Land tenure registries remain uninitiated.

Dorjdari Namkhaijantsan, Mongolia manager for the Natural Resource Governance Institute, expressed dissatisfaction with the results. Not only are the registries incomplete or non-existent, but they merely show company licenses, not actual ownership information on who owns the companies. The company that owns a license for a particular concession or territory might not actually be the beneficiary – the entity profiting from its exploitation. Often, shell companies conceal actual owners.

In February, Mongolia received a record $5.5 billion stabilization package from the International Monetary Fund. At the same time, Mongolia has removed restrictive banking regulations that open the country up to wider mining exploration – its most lucrative (and divisive) industry. With more foreign exploration and investment resulting from both the stabilization package and the repealed regulations, Mongolia could see potentially huge economic growth. With this expansion, the demand for corruption could grow.

Signals are mixed. Mongolia recently annulled a regulation requiring foreign mining companies to use local banks. One of its stated aims was to help trace profits from mining concessions to ensure better taxation. This was quickly blocked. The largest foreign mining entity in Mongolia, the Australian-British corporation Rio Tinto, objected on the grounds that none of Mongolia’s banks have an AA or above credit rating, rendering the regulation untenable.

Like so many commitments aimed at “following the money,” the efforts may be good first steps, but remain inadequate until the actual beneficiary is listed. Mongolia’s second NAP – currently in the implementation stage – carried forward a related commitment on beneficial ownership in the mining sector. As the extractive industries expand in Mongolia, we at OGP hope the community will support Mongolia in undertaking these essential reforms – through international support and exchange, civil society advocacy, and independent review.

Original research for this article completed by Batbold Zagdraggcha and Tserenjav Demberel. Additional research provided by the Independent Reporting Mechanism.

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