sharing in governance of extractive industries

Enhancing transparency of local level agreements in the Mongolian mining industry

Mongolia is one of several developing countries in the world where project proponents are legally required to establish agreements with host communities or local government authorities. While agreement making with Indigenous peoples has become a standard process in the mining industry in few countries such as Australia and Canada, it is new to many resource-rich developing countries.

Unlike agreements with Indigenous communities in Australia and Canada that are widely regarded as private agreements, local level agreements in Mongolia are negotiated with local government office-holders who are elected or appointed to both represent their local constituents and implement national government policies. These agreements should comply with the legal and policy frameworks of open and transparent government in Mongolia. Unlike mining agreements between national governments and mining companies that are often undisclosed due to confidentiality provisions to protect commercially sensitive information, local level agreements cannot be kept confidential because their scope and content are not about production, revenue sharing and technology but focused on co-managing impacts and local development contributions. Usual arguments against contract transparency does not work in this case.       

In Mongolia a legal requirement for local level agreement making was first introduced in the Minerals Law in 2006 as a result of civil society's push towards local participation in decision making over mining. They wanted to require an agreement with local government authorities representing project-affected communities as an integral element of license issuing process. As often happens, the civil society's proposal was significantly modified and reduced during parliamentary readings. Article 42.1 of the Minerals Law in 2006 stated 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 was a modification of Article 33 of the Mongolia's Minerals Law enacted in 1997 that stated a mining license holder shall coordinate their operation with local administration bodies’ policy on environmental protection, infrastructure development and employment.

The new requirement for local level agreements had no complementary procedures for implementation and accountability. In practice, it became an alternative framework for companies and local government authorities to define their relationships. Unsurprisingly, not many companies have complied with the requirement for local level agreements since 2006.

In Mongolia, there is no information database and publicly available reports on the agreements. Although the 2012 EITI Mongolia report contains a list of agreements and contracts between resource developers and local government authorities, it does not suffice to get content details. Some civil society organizations have developed guidelines and templates but very few local governments and mining companies use these tools in a consistent manner.

Importantly, these agreements are not in the public domain. This is not because they have a confidentiality section but the norms of transparency are not widely adapted. More than 15 local level agreements that I have been able to secure copies do not contain specific restrictions against public disclosure. Instead, some have provisions on agreement parties' commitment for transparency.

A cooperation agreement established between Oyu Tolgoi LLC and Umnugovi aimag in April 2015 is the only publicly available local level agreement in Mongolia. A full copy of the agreement is on the company's website. In addition to the final agreement, it contains an initial MoU, process agreement and other key documents that the parties previously negotiated and signed in order to facilitate a consistent negotiation process. This sets a good precedent for transparency. It also becomes an important source of accumulated capacity and shared experience in designing, negotiating and implementing local level agreements. 

Under the amendments made to the Minerals Law in 2014, the Government of Mongolia is developing a model template for company-local government agreements. Hogan Lovells, an international law firm, has carried out a consultancy project to assist the government to develop the model framework since 2014. Different versions of the model template have been circulated by government to receive comments from different stakeholders. A nearly completed version (in Mongolian) has recently been published online for public comment.

It seems that the government's main intention to issue a model template is to provide a clearly defined framework for forging transparent and mutually beneficial relationships between mining companies and local government and communities. According to mining ministry officials, agreements established under such a clear framework can enhance operational certainty for the industry, which is under increasing, and often rent-seeking, pressure from local government authorities. The media has reported allegations of corruption and extortion. Accordingly, the proposed model template excludes any financial and material contributions from mining companies to local governments. The model framework obligates the local government to ensure public consultation and transparency in agreement negotiation and implementation. 

However, unless an overarching requirement for public disclosure and complementary procedures are legally mandated, transparency of local agreements is likely to remain inconsistent as the inconsistent compliance with Article 42.1 indicates. The model framework, if approved as a guideline, but not as a prescriptive document, can be an important resource for companies and local communities and governments. If public disclosure of local level agreements becomes a standard process it is likely to improve public scrutiny, knowledge sharing and capacity of parties, which are key to making better agreements. 

There are several options for mandating public disclosure of local level agreements. Perhaps, an easier way is to modify the existing laws that have a good precedent for contract transparency. Since 2014, the Mongolia's Law on Glass Accounts requires online publication of a concession contract within a week after the parties signed it. Under the Law on Concession, the Government of Mongolia has established an online database of concession contracts and related information. The same legal and institutional framework is applicable to local level agreements and the implementation may not require much resources. Another was is incorporate information on local level agreements as fully as possible in the Mongolian EITI standards and a draft EITI law. Amendments to other relevant laws such as the Minerals Law and Law on Freedom of Information to require contract transparency are possible. However, the broader scope of these laws and potentially protracted debates over confidentiality of commercially sensitive information contained in other types of agreements such as Product Sharing Agreements and Investment Agreements may delay and eclipse efforts to ensure companies and governments adequately disclose local level agreements.


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Comment by DALLAS WAYNE DAVIS on December 10, 2015 at 13:59

Thanks for responding, Byambajav. I wish that I could be here and that we could meet, but my contract has only provided for a few weeks in the country at this time. It has been a very intensive period of work and learning. Much has changed since 1997 and 1998 when I was last here as an advisor to Malaysia Mining Corp. Bhd. investigating gold investment possibilities and the risks as perceived at the time. Overall, I am very pleased with how policy has developed. As the gold price recovers and with stability, transparency and clarity of legislation, it will be possible to attract the $110/sq km, or so, of exploration annually which Western Australia has found necessary to sustain and grow the gold industry and its contribution to the economy. 

Comment by Byambajav Dalaibuyan on December 10, 2015 at 10:22

Hi Dallas, thanks for the comment. I am in Mongolia from Jan 5th to 21th. Will be you still in Mongolia then?

Comment by DALLAS WAYNE DAVIS on December 8, 2015 at 12:17

An excellent post. I am currently in UB as the gold sector advisor for a gold development strategy that is being developed under a project managed by Adam Smith International on behalf of the Australian government. If you were here it would be great to meet and discuss the issues.

Comment by Julian Dierkes on December 7, 2015 at 1:52

Terrific post, Byamba. These CDAs and Impact-Benefit-Agreements etc are really very interesting and Mongolia is a fascinating place to watch them take root (or not). Thanks for providing an overview here and pointing to some of the challenges regarding transparency and governance that remain.


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