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sharing in governance of extractive industries

Mining cooperation agreements in Mongolia

Abstract: Cooperation agreement (CA) is the Mongolian equivalent of community developments agreements (CDA) used in other jurisdictions, although Mongolian communities are not legally party to such agreement. The adoption of the Model Cooperation Agreement (MCA) by the government of Mongolia in 2016 added some details to the general requirement of the Minerals Law. However, both the MCA and past CAs seems to be problematic in light of international guidelines and unduly focus on local content, with little consideration to local herder families who tend to be the most affected by the mining industry. Nevertheless, an appropriate balance for every stakeholder can be obtained as highlighted in the example of Oyu Tolgoi Cooperation Agreement.  

1.      INTRODUCTION

The Mongolian mining industry accounts for more than 80% of the country’s export earnings and one-fifth of GDP. This overdependence on mining export makes the country vulnerable to commodity boom and bust cycles. At the peak of the last super cycle, Mongolia’s GDP growth reached historic 17.3% in 2011, but tracked a sharp decline in the following years to reach 0.1% in 2016 (World Bank Group, 2017, p. 93). Apart from the impact on the national economy, the environmental and social impact of mining in Mongolian rural areas have been substantial for the last decade. Although Mongolia is one of the least-densely populated country in the world, mining operations affects the livelihood of nomadic herders who seasonally move with their livestock within the boundaries of their provinces (aimag) or districts (soum).

Cooperation agreement (CA) is a statutory requirement under the 2006 Minerals Law of Mongolia (Minerals Law) and should be entered into by mining companies with local governors. The same law also requires the government to adopt a model for this type of agreements. Despite this clause, the Model Cooperation Agreement (MCA) had not been adopted until March 2016, causing a decade of legal gap (EITI Mongolia, 2017, p. 77). Except for two CAs signed by two large mining companies in two different regions, not much has been known about the exact number of other CAs signed, let alone their content (Dalaibuyan, 2015, p. 9). As a result of the growing collaboration between the Ministry of Mining and Heavy Industry (MMHI) and civil society organisations towards more transparency in extractive industries, some of CAs are now available for public access in the resource contracts database established in April 2017.

The advent of MCA in 2016 was expected to resolve the procedural ambiguity arising from the general requirement of the Minerals Law. As little more than one year passed, the effectiveness of the MCA in practice still remains to be seen. Notwithstanding this fact, it is worthwhile to examine if there are still gaps unaddressed in conceptual sense. In other words, the MCA and relevant provisions of Mongolian laws will be analysed in light of the contemporary concept of community development agreement (CDA) and international soft law standards. More specifically, this paper will explore how the MCA stands in comparison to the industry’s best practice in terms of content and approach, with particular focus on the rights and livelihood of nomadic herders.

2.      LITERATURE REVIEW OF COMMUNITY DEVELOPMENT AGREEMENTS

Globally mining activities cause significant environmental and social impacts and bring challenges to the livelihood of communities (World Economic Forum, 2015, p. 6). Although the effects are most acutely felt locally rather than nationally, the relationship between extractive industry companies and local or indigenous people have conventionally been considered as mere corporate social responsibility matters (Godden, et al., 2008, p. 3). The fundamental deficiency of this approach advocated by the industry and finance institutions is that these initiatives are voluntary in essence and may be unsustainable and enforceable (O’Faircheallaigh, 2014, p. 92).  Nevertheless, a new trend towards community development agreements has been in place since early 1990’s and gained momentum in 2000’s (O’Faircheallaigh, 2013, p. 222).

From historic perspective, community development agreements emerged at the intersection between the legal framework of mining rights and the growing acknowledgement of indigenous or community title to land (Godden, et al., 2008, p. 5). In a narrow sense, CDAs, to some extent, address the land access issue arising from this interaction and mitigate the negative impacts of mining. More broadly, they can be designed to ensure equitable benefits from development, facilitate the participation of communities in environmental management and mine closure activities, and create a self-sustained development independent of mine (O’Faircheallaigh, 2013, p. 228; Otto, 2010, p. 1). Nevertheless, the scope of CDAs differ country by country reflecting local needs, past history and legal tradition.

In addition to the relatively early examples of Canada, Papua New Guinea and Australia, the number of countries requiring CDAs have increased over the last decade, including Guinea, Kenya, Nigeria, Mozambique, Sierra Leone, South Sudan, Egypt, and Mongolia (Bruckner, 2016, pp. 422-423). In parallel to these developments, a several guidelines regarding the regulation, content, and enforcement of CDAs have been generated by the World Bank Group and international nongovernmental organisations. Of this literature, works by the World Bank Group will be used as an analytical framework for the purpose of this paper.    

3.      LEGAL AND SOCIAL BACKGROUND OF COOPERATION AGREEMENTS IN MONGOLIA

3.1  Social context

The social and political context of Mongolia is so different from those countries where CDAs are commonly applied. Around 30 percent of the Mongolian population consists of nomadic herders who continue the subsistence economic activity that dates back to ancient times. There have been some attempts to consider Mongolian herder family groups as indigenous people by civil society organisations and by herders themselves. However, their self-identity overlaps with the common national identity of Mongolia (Dalaibuyan, 2015, p. 4). Moreover, herder families do not share tribal ties that commonly seen in American and African continents. Thus, this reality requires a different approach to community representation and to the concept of ‘qualified community’ for CAs. Rather than informal governing practices in a self-identified community, it is the formal governance structure of a soum or to less extent aimag that comes into play with the mining industry.  

Despite the political and social difference briefly explained above, similarly to many indigenous communities around the world, the life of Mongolian nomadic herders is much dependent on the basic natural resources of water and vegetation. These life sources for their grazing animals are very vulnerable to changes in climate pattern and the human industrial activities like mining (Schleger, et al., 2015, p. 6). To most Mongolians, nomadic lifestyle is seen as the cultural and spiritual foundation of the national identity, something which should be preserved together with surrounding environment (Upton, 2010, pp. 307-310). Thus, it is of paramount importance for the Mongolian mining sector to promote sustainable development whose environmental and social dimensions are consistent with the traditional fabrics (Schleger, et al., 2015, p. 9).

3.2       Legal context

3.2.1        Constitution and mining code

As common in other jurisdictions, the ownership of mineral resources vests with the state according to Article 6 of the Constitution of Mongolia. The constitution also affirms the peoples’ “right to healthy and safe environment”, and provides for safeguard against “environmental pollution and ecological imbalance”. The requirement for licence holders to engage with local governments and inhabitants on a contractual basis arises from Article 42 of the Minerals Law, which states that “A license holder shall work in cooperation with the local administrative bodies and conclude agreements on issues of environmental protection, mine exploitation, infrastructure development in relation to the mine-site development and job creation”. It is a clear from the expression of the clause that a party to any CAs is necessarily a soum government which contrasts with what appears to be common practice in the world or the idea of optional party suggested in Model Regulations (Otto, 2010, p. 19).

Another distinction from the laws of countries like Papua New Guinea which make CDAs precondition to the start of mining operation is that Mongolian CAs are not included in the list of requirements (Minerals Law 2006, art. 35) for commencing mining activities. By the same token, licences are not suspended on the ground of absence of CA and neither the law nor the MCA includes the compliance mechanism by way of suspension proposed in the Model Regulations (Otto, 2010, p. 31).

3.2.2        Land tenure and access to land

The land tenure regime in Mongolia is a complicated area of law because of the ownership claim arising from statutory law and customs prevailing. Legally, all pastureland is owned by the state and managed by district governors, who act on behalf of central government. As customary use of land by herders is not guaranteed by the land possession or land use rights defined in the respective laws, decisions made by the mining authority and local governments often results in a situation where herders have to leave the pastureland they use (Jigmiddash & Rasmussen, 2014, p. 580).

Although the Minerals Law provides for public consultation, it only serves for the purpose of CA and is not comparable with the international practice of seeking free, prior, informed consent (FPIC). In fact, FPICs as defined in the international law and industry guidelines (e.g. IFC performance standard) are not applicable to Mongolian herders for the reason explained in the preceding section of this paper. When herders and mining companies disagree on the amount of resettlement compensation, the way the case is brought before a court tends to be based on the right to healthy and safe environment (Konbai, 2017). Therefore, it can be inferred that a legal gap exists in terms of protecting customary land rights of herders (IFC, 2012; EBRD, 2012).  

ICAs can be an important tool to minimise the impact of mining on the livelihood of herder communities. For example, it can include obligation as to treatment of ecological systems for traditional activities (Otto, 2010, p. 18). Likewise, permanent or seasonal land access rights can be integrated in CA (CSRM, 2011, p. 4) 

4.      MODEL COOPERATION AGREEMENT ASSESSMENT AND EXPERIENCE OF OYU TOLGOI

4.1  Model Cooperation Agreement (MCA) assessment

Both process and content are important aspects of successful CDAs and if process leading to agreement is omitted the final document will likely to be something that does not represent the interests of communities (Bocoum, et al., 2012, p. 3; Bruckner, 2016, p. 426). It would have been useful for the industry if the government of Mongolia had adopted MCA together with a regulation delineating relevant processes. As the latter does not exist, the assessment of this research has largely been limited to the content of MCA.

Nevertheless, two process related matters may be worthy to note. Internationally, qualified communities are determined based on self-identification or on the outcomes impact and risk assessments, with revision by an ongoing monitoring and adjustment (Bocoum, et al., 2012, pp. 19-20). Since self-identification is not suitable in Mongolian context, it can be inferred that the beneficiaries of CA would either be those identified by ESIA, with inclusion of others who are impacted, or all those living in the geographical boundaries of a soum. Secondly, capacity building is an integral part of CDA processes as it prepares communities and local governments for negotiation, project planning and implementation (Bocoum, et al., 2012, pp. 8, 31). Although there is no legal requirement for capacity building in Mongolia, mining companies may obtain better content for their CA than those prescribed in MCA if they implement it voluntarily during the negotiation stage.   

It is inarguable that the content of CDAs differs from country to country, depending on the context. However, there some points in Mongolian MCA that stands at odds with the international guidelines. Firstly, it has focus on the infrastructure development and job creation, rather than activities aiming improvement in the livelihood of all inhabitants, including herders. Secondly, the participation of local population in CA-related activities is indirect because the initiation of project proposals vest in local government under the MCA. Consultation meetings which seems to be the only arena for their inputs are made dependent on the performance of local governor’s obligation to facilitate such meetings. If this approach is approved in every CA, it may run against the social licence to operate in some instances where herders and local citizens perceive the mining company to be supporting the agenda of local governor.

Apart from the licence holder’s obligation to diligently carry out his/her environmental protection plan, MCA does not include any prescription on promoting traditional economic activities, nor any inference to cultural aspects of local community. As a whole, the MCA seems to miss broader development concept that promotes self-sustaining development. The detailed assessment of the MCA can be consulted in Annex A this paper.   

4.2  Oyu Tolgoi Cooperation Agreement  

The Oyu Tolgoi copper-coal project, managed by Rio Tinto, signed a CA with the local governments of aimag and soums in April 2015. Largely following the processes and governance structure of the CDA between Argyle mine, another Rio Tinto project, and traditional owners, this CA is one of success stories in Mongolian mining industry (CSRM, 2011, pp. 36-37; Bruckner, 2016). While accommodating local conditions unique to Mongolia, the agreement is line with most of the international best guidelines.

The agreement was a product of the years of stepped process that includes the capacity building of all stakeholders and comprehensive engagement with local citizens including nomadic herders. As a result, the Oyu Tolgoi CA was more accommodating to the interests of those most impacted, e.g. nomadic herders. It provides for obligations and commitments on supporting traditional animal husbandry, on management of pasture land and water, and on broader environmental conservation (2015; p. 3). These have been things that were not explicitly envisaged in both the MCA and other CAs signed in different regions of Mongolia.

Qualified communities or, more properly, partner soums was chosen based on the degree of the impact they bear from the mine-related activities. By differentiating between soums in terms of the intensity of development activities, this approach seems to be a good approach in managing expectations of different stakeholders.    

As for the governance of projects and programs, the Oyu Tolgoi CA provides for the independent Development Support Fund (DSF), which, apart from its Secretariat, has two important bodies, namely the Board and Relationship Committee. Mostly represented by officials of aimag and soums, the Relationship Committee’s two main purposes are (1) to ensure comprehensive and transparent consultation on the investor’s all obligations and commitments under CA, and (2) to review project and program proposals and provide recommendations to the Board. The Board, in which the investor holds majority, is the final decision-making body to approve project and programs proposals. In contrast to the logic MCA, proposals can be submitted from local citizens and both the Secretariat and investor provide support and information to enhance important proposals to align it with the DSF’s funding criteria and goals.      

Apart from obligations related to local content, infrastructure, job creation and education opportunities, there are list of obligations and commitments agreed by the investor in respect of the well-being of herder communities and development of traditional animal husbandry. The following are some of the key provisions: 

  • Providing relevant data, research and expertise for the preservation and development of traditional animal husbandry;
  • Support establishment of sustainable herder cooperatives;
  • Enable disturbed land to become suitable for nomadic herder access and grazing animals;
  • Implement cultural heritage management plan to protect cultural heritage during the operation of the Oyu Tolgoi project.
  • Cooperate to develop tourism to create additional income source and minimize the Partner communities’ economic dependence on mining;
  • Support the hydrogeological explorations and water reserve identification;
  • Restoration and construction of water wells and bores; and
  • Support to treat self-discovered water resources for household purposes and agricultural activities.

In terms of grievance mechanism, Oyu Tolgoi CA does not include any reference to local governments’ assistance in addressing potential conflicts with local citizens. Instead it states that the company will maintain complaints, disputes and grievance system and provide annual updates to the Relationship Committee on the overall nature of complaints received and their resolution (Oyu Tolgoi CA; sch.8, pt.1).   

5.      CONCLUSION

Cooperation agreement (CA) is the Mongolian equivalent of community development agreements (CDA) used in other jurisdictions, although Mongolian communities are not legally party to such agreement. The adoption of the Model Cooperation Agreement (MCA) by the government of Mongolia in 2016 added some details to the general requirement of the Minerals Law.  However, as the MCA only advises on the potential content of CAs to be entered by mining companies, some of important process-related matters such as capacity-building and identification of beneficiaries are dependent on the efforts of industry. In terms of content, MCA is not up to the best international practices as it lacks some key principles of CDAs such as community participation and consultation, equitable benefit sharing among those impacted, community empowerment and sustainable development concept in which environment sustainability is integral part (Bocoum, et al., 2012, p. 14; UNCED, 1992; CSRM, 2011, p. 1). If the MCA design should be strictly followed for future CAs, it may simply strengthen local government position in trilateral relationship of investor, local government and communities.  

Nevertheless, there is nothing that stands against good endeavour and innovation of mining companies to fill the process and content gaps. By carrying out broad-based stakeholder mapping and engagement from the beginning, companies can obtain better results that is balanced and reasonable for both all stakeholders as illustrated by Oyu Tolgoi project and its CA with the relevant local governments. Since most projects in Mongolia will not likely to be as profitable or of large scale as Oyu Tolgoi, the tailored approach should be taken if they are to follow its practice.          

BIBLIOGRAPHY

PRIMARY SOURCES

Bocoum, B. et al., (2012). Mining Community Development Agreements: Source Book, Washington, DC: World Bank.

Bruckner, K. D., (2016). Community Development Agreements in Mining Projects. Denver Journal of International Law and Policy, 44(3), pp. 413-428.

CSRM, (2011). Good Practice Note Community Development Agreements, Brisbane: CSRM.

Otto, J., (2010). Community Development Agreement: Model Regulations and Example Guidelines, Washington, DC: World Bank.

Oyu Tolgoi CA, (2015). [Online] Available at: http://ot.mn/media/ot/content/our_commitments/communities/ca/OT_Coo...  [Accessed 20 May 2017].

Minerals Law of Mongolia, (2006), [Online] Available at: http://www.forum.mn/policyissue/MineralsLawOfMongolia20090919_en.pdf

[Accessed 20 May 2017].

Model Cooperation Agreement, (2016), Government Resolution 179.  [Online] Available at: http://www.legalinfo.mn/annex/details/7245?lawid=11852

[Accessed 20 May 2017].

SECONDARY SOURCES

Bruckner, K. D., (2016). Socioeconomic Benefit Optimization in Mongolia: The Gobi Oyu Development Support Fund. [Online]
Available at: http://igfmining.org/socio-economic-benefit-optimization-in-mongolia/
[Accessed 20 May 2017].

Dalaibuyan, B., (2015). Mining, Social License and Local-level Agreements in Mongolia. Hawaiʻi, University of Hawaiʻi at Mānoa.

EBRD, (2012). Summary of EBRD Consultation: Oyu Tolgoi Copper-gold Mine. [Online]
Available at: http://www.ebrd.com/english/pages/project/eia/41158ehsdisclsum.pdf
[Accessed 9 May 2017].

EITI Mongolia, (2017). Mongolia Tenth EITI Report, Ulaanbaatar: EITI.

Godden, L. C., Langton, M., Mazel, O. & Tehan, M., (2008). Accommodating Interests in Resource Extraction: Indigenous Peoples, Local Communities and the Role of Law in Economic and Social Sustainability. Journal of Energy and Natural Resources, 26(1), pp. 1-30.

IFC, (2012). Response to Civil Society Review of Oyu Tolgoi. [Online]
Available at: http://www.ifc.org/wps/wcm/connect/9a2a30004e9d88548ec4ce1dc0e8434d...
[Accessed 10 May 2017].

Jigmiddash, B. & Rasmussen, J., (2014). Protecting Community Rights: Prospects for Public Interest Lawyering in Mongolia. Wisconsin International Law Journal, 31(3), pp. 567-584.

Konbai, J., (2017). Court cases regarding herders and MRPAM. [email]: s.n.

O’Faircheallaigh, C., (2013). Community Development Agreements in the Mining Industry: An Emerging Global Phenomenon. Community Development, 44(2), pp. 222-238.

O’Faircheallaigh, C., (2014). Social Equity and Large Mining Projects: Voluntary Industry Initiatives, Public Regulation and Community Development Agreements. Journal of Business Ethics, 132(1), pp. 91-103.

Schleger, C. I. et al., (2015). Responsible Mining in Mongolia: Enhancing Positive Engagement, Brisbane: Sustainable Minerals Institute.

Tumenbayar, N., (2002). Herders' property rights versus mining in Mongolia. Providence: Watson Institute of International Studies.

UNCED, (1992). Rio Declaration on Environment and Development. [Online]
Available at: http://www.un.org/documents/ga/conf151/aconf15126-1annex1.htm
[Accessed 22 May 2017].

Upton, C., (2010). Managing Mongolia's commons: land reforms, social contexts, and institutional change. Society & Natural Resources, 25(2), pp. 156-175.

Upton, C., (2010). Nomadism, Identity and the Politics of Conservation. Central Asian Survey, 29(3), pp. 305-319.

World Bank Group, (2017). Global Economic Prospects: Weak Investment in Uncertain Times, Washington, D.C.: World Bank.

World Economic Forum, (2015). Mapping Mining to the Sustainable Development Goals, Geneva: World Economic Forum.

ANNEXURE: CONTENT OF MONGOLIAN MCA VERSUS INTERNATIONAL GUIDELINES

 

International guideline

MCA provisions

Comment

Community participation in the management of CDA activities

  • Community participation should be ensured in managing a foundation, trust or fund established under CDA (Bocoum, et al., 2012, p. 55).
  • Funds may be directly managed by community (CSRM, 2011, p. 21).
  • Citizens have the right to provide feedback to soum governor on proposed projects or activities 

(cl. 2.1.2).

  • Citizens can participate in a public meeting organised by soum governor to discuss proposed projects and activities 

 

  • No specific provision for funds or foundation, yet it is possible to establish an independent organisation to manage the implementation of CA.
  • Citizens’ participation rights are dependent on the governor’s performance of his/her legal and contractual obligation to facilitate.

Information sharing requirements and procedures

  • Industry obligation to act transparently and disclose all relevant information (Bocoum, et al., 2012, p. 21).
  • Consult stakeholders, including communities, if there are material changes to mine developments plans, designs, schedules and temporary closures (Bocoum, et al., 2012, p. 27).

 

  • Both soum Governor and Licence Holder shall disclose MCA in their websites within 3 days of the signing and submit a copy to national EITI within 5 days (cl. 5.1).
  • Both soum Governor and Company shall update citizens on ongoing and proposed development projects, activities and operation.

(cl. 2.1.2; 3.1.6)

  • Transparency in procurement and employment opportunities
  • Integration with EITI standards and monthly updates on all activities seem to be very progressive provision.

  

 

Community development objectives and programs

  • Social investments including improvements to health and educations infrastructures (Bocoum, et al., 2012, p. 51).
  • Apprenticeship, educational scholarship, technical training and employment opportunities (Otto, 2010, p. 17) 
  • Assistance in creating self-sustaining and income-generating activities. This can be technical, organisational and financial based on local and business context (Otto, 2010, p. 14; Bocoum, et al., 2012, p. 35).

 

  • Projects or activities approved by Citizen’s Representatives Meeting. Governor and Licence Holder shall agree on which project to implement 

    (cl. 2.1.3).

  • Priority to local citizens and entities in procuring goods and services (cl. 2.)
  • Percentage of local workforce shall not be under x.

(cl. 3.1.4)

  • Training and recruitment of local citizens (cl. 3.1.4)
  • Organise training for jobs to be created by projects and activities
  • Too much emphasis on local employment.
  • Focus on local content, not on community empowerment or promoting self-sustaining activities for herders. 
  • Minimum percentage requirement for local employment is unusual. If threshold is set at high level at the outset of project, managing this obligation throughout the project life may be challenging.

 

Management and monitoring

  • Consultative and monitoring frameworks between the holder of the mining right and the qualified community.
  • The means by which

the community may participate in the planning, implementation, management, measurement and monitoring of activities carried out under the agreement (Otto, 2010, p. 39).

  • Cooperation Committee consisting of nine members, with equal participation of all stakeholders including local citizens.
  • Cooperation Committee shall monitor the negotiation and implementation of CA.  
  • No provision as to capacity building for the representatives of local government and citizens. 

Dispute resolution

  • Dispute regarding the agreement shall in the first instance be resolved by consultation (Otto, 2010, p. 39)

 

  • Parties use best endeavour to settle any disputes related the implementation of CA in mutual respect and good faith. If dispute is unsettled, the Parties may refer the case to court (cl. 7.1).
  • The implications of any dispute may be more severe than those arising from an agreement with community as local governments have some authority to affect mine operation.  

Grievance and feedback mechanism

  • Feedback mechanism based on five principles: proportionality, cultural appropriateness, accessibility, transparency and accountability and appropriate protections (Bocoum, et al., 2012, p. 48).
  • Upon Licence Holder’s request, local government shall address illegal disruptions caused by citizens and local entities as per relevant laws (cl. 3.1.1).
  • Seeking the administrative power of local government should be the last resort as it carries reputational risk both to licence holder and local government.  

Cultural rights & traditional activities

  • Support for cultural heritage, treatment of ecological systems for traditional activities, land access, respect to cultural
  • No provision
  • As stated above, MCA unduly focuses on social investments and job creation. 

 

 

 

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