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sharing in governance of extractive industries

Unbundling contract transparency in the extractive industry: the case of Mongolia – Part I

Contract transparency is crucial in ensuring deals in the extractive industry deliver better outcomes for the host nation and community. Civil society has long campaigned for contract transparency in ‘first and third world’ traditional mining countries. Except Australia, however, contracts are not common in ‘first world’ mining countries. Instead, we find in these countries a mature licensing system embedded in a well-developed legal system.

History of Contracts in Mongolia

Contracts in the extractive industry are often a highly contested political issue in emerging mining countries like Mongolia. Here, contracts with project proponents are a preferred way to grant mineral rights—particularly for large-scale projects. The Mongolian government has established many contracts with mineral resource developers since the country adopted a market-based economy in 1990. Product-sharing agreements between the Government of Mongolia and Soco Tamsag Mongol, a USA-registered oil company, in the early 1990s and a Stability Agreement with Boroo Gold LLC, a subsidiary of Canadian registered Centerra Gold LLC in the late 1990s were among the earliest contracts. By 2015, the Government of Mongolia has established two Investment Agreements, four Stability Agreements, 24 Product Sharing Agreements, and three Concession Agreements. The number of local level agreements between local governments and project proponents is not known. Moreover, the Government of Mongolia has developed model templates for establishing Product Sharing Agreement and Concession Agreement.

Stability Agreements established since 1998 were not disclosed until public discontent mounted due to some unfavourable contract terms. Three of them are available online. However, this type of contract was replaced by Investment Agreements under the Investment Law of Mongolia in 2013.

The Oyu Tolgoi Investment Agreement established in 2009 is available online. The Investment Agreements that Mongolian Gold or MAK LLC established with the Government of Mongolia in October 2015 are not publicly disclosed though it has been widely discussed in the media and parliament.

Under the Law on Concession enacted in 2010, several infrastructure concession contracts such as a concession agreement for the Erdenet-to-Ovoot railway with Northern Railways, a Mongolian subsidiary Australia-based Aspire Mining have been published online by government.

Full documents of Product Sharing Agreements of oil companies are not available in Mongolia. Surprisingly, the Open Oil, an international repository of oil contracts, contains three Product Sharing Contracts established in Mongolia.

Most local level agreements (as discussed in my recent GOXI post) are not publicly disclosed yet.

Discourse on Contracts in General

Contract transparency narratives in Mongolia are about these concrete agreements and potential agreements in the future such as a long-waited Tavan Tolgoi Investment Agreement. Surprisingly, the narratives are overgeneralized. Contracts in the extractive industry are often bundled as a general term that contains different types of contracts and agreement but the very nature and specifics of each type of contracts and corresponding financial and political significance for the country are not made clear. This approach to contract transparency seems common in other countries and international policy documents, except a focus on oil contracts.

A goal of contract transparency initiatives is to publicly disclose all contracts and agreements, especially through mandatory legal requirements. This goal has been achieved in very few countries. In many countries, contract transparency initiatives have often hit a brick wall of arguments for maintaining commercially sensitive information of investors and companies. Unless there is significant societal demand expressed through broad-based political and social discontent, the disclosure of contracts—particularly large-scale projects—has rarely been encouraged by governments and companies. Often such a ‘singled out’ discontent and discussion have led to better access to information and more disclosure of contracts. Similarly, discussions that single out a type of contract such as Product Sharing Agreements and Local Level Agreements or unbundle the general narrative of contract transparency may deliver better net results.

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